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61ST  Congress  1  SFNATF  ^  Documknt 


f  Docui 
I     No. 


2d  Sessioti       /  ^^    ^^^.x.  \     No.  575 


NATIONAL  MONETARY  COMMISSION 


The  Banks  of  Issue 
in  Italy 


BY 

TITO  CANOVAI,  F.  S.  S. 

Chief  General  Secretary  of  the  Bank  of  Italy 
WITH  AN  /^RTICLE  BY 

CARLO  F.  FERRARIS 

Professor  in  the  University  of  Padua 


The  Text  of  the  ItaHan  Banking  Law 


Washington  :  Government  Printing  Office  :  1911 


<c^ 


NATIONAL  iMONRTARY  COMMISSION. 

Nelson  W.  Aldrich,  Rhode  Island,  Chairman. 
Edward  B.  Vkeeland,  New  York,  V ice-Chairman. 


Julius  C.  Burrows,  Michigan. 
Eugene  Hale.  Maine. 
Philander  C.  Knox,  Pennsylvania. 
Theodore  E.  Burton,  Ohio. 
Henry  M.  Teller,  Colorado. 
Hernando  D.  Money,  Mississippi. 
Joseph  W.  Bailey,  Texas. 


John  W.  Weeks,  Massachusetts. 
Robert  W.  Bonynge,  Colorado. 
Sylvester  C.  Smith,  California. 
Lemuel  P.  Padgett,  Tennessee. 
George  F.  Burgess,  Texas. 
Arsene  P.  Pujo,  Louisiana. 
Arthur  B.  SunhroN.  Secretary. 


A.  Piatt  Andrew,  Special  Assistant  to  Commission. 


CONTENTS. 


Page. 

The;  Banks  of  Issue  in  Italy 5 

By  Tito  Canovai,  F.  S.  S.,  Chief  General  Secretary  of  the  Bank  of  Italy. 

The  Italian  Banks  o^  Issue 205 

By  Carlo  F.  Ferraris,  Professor  in  the  University  of  Padua. 

The  Text  of  the  Italian  Banking  Law 257 


217985 


The  Banks  of  Issue  in  Italy 


TITO  CANOVAI,  F.  S.  S. 

Chief  General  Secretary  of  the  Bank  of  Italy 


THE  BANKS  OF  ISSUE  IN  ITALY. 

BY 

TITO  CANOVAI,  F.  S.  S. 

PREFACE 7 

Chapter  I. — Origin  of  the  Italian  banks  of  issue 15 

II. — The  association  of  the  banks  of  issue 28 

III. — The  aboHtion  of  forced  currency  and  its  effects 43 

IV. — The  Credit  Foncier  or  realty  credits   of   the  Banca 

Nazionale  nel  Regno  d'ltalia 62 

V. — Excess    of    building    at    Rome — The    difficulties    of 

finance — Embarrassments  of  the  Banca  Romana  .  .  71 

VI. — The  building  crisis  and  banking  subsidies 87 

VII. — Conditions  of  currency  in  1890 — Mutual  redemption 
of  notes  among  the  banks  of  issue — Schemes  for 

banking  reform 97 

VIII. — Failure  of  the  Banca  Romana  and  the  crisis  of  1893        108 
IX. — Examination  of  the  banking  act  of  August  10,  1893.  .        115 
X. — Parliamentary  committee  of  inquiry — Aggravation  of 
the  financial  and  economic  situation — Financial  and 
banking  provisions  of  Minister   Sonnino  and  their 

effect 129 

XI. — The  military  disaster  in  Africa  and  its  conse- 
quences— The  Rudini   Ministry — New  banking  act 

proposed  by  Minister  Luzzatti 149 

XII. — The  disorders  of  1898 — The  commercial  agreement 
with  France — Excess  of  speculation — New  ideas 
in  the  management  of  the  Bank  of  Italy — Note- 
worthy improvement  in  the  financial  situation.  ...  161 
XIII. — The  conversion  of  Italian  rentes  and  its  effect  on  the 
money   market — The  crisis  of   1907 — Modifications 

of  the  banking  act 17^ 

XIV. — The  restoration  of  the  banks  of  issue 180 

XV. — The  progress  of  Italy  from  1894  to  1908,  in  com- 
parison with  England,  France,  Germany,  Austria- 
Hungary,  Spain,  and  Belgium 187 

XVI.— Conclusion 201 


THE   BANKS  OF  ISSUE  IN  ITALY. 


PREFACE. 


The  stormy  vicissitudes  which  the  ItaHan  banks  of 
issue  have  passed  through  in  the  last  half  century  make 
their  history  particularly  interesting,  because  they  show 
the  inevitably  ruinous  effects  of  bad  banking  systems  and 
of  disregarding  the  strict  standards  by  which  institu- 
tions authorized  to  issue  paper  money  should  be  rigor- 
ously governed. 

The  history  of  ItaHan  banks,  whether  in  good  or  in 
evil,  affords  material  from  which  may  be  deduced  use- 
ful instruction.  It  shows  the  causes  of  disturbances  of 
circulation  and  credit  and  points  to  the  remedies. 

And  yet,  we  may  repeat,  even  in  this  regard  there  is 
nothing  new  under  the  sun;  other  countries,  for  the  same 
causes  and  reasons  had  passed  through  these  same  vicis- 
situdes before  Italy  experienced  them  and  had,  like  Italy, 
felt  the  pernicious  effects  of  a  wretched  system  of  banks 
of  issue  or  their  bad  government,  since  it  is  not  possible 
to  violate  the  fundamental  laws  that  govern  credit  and 
circulation,  or  any  other  economic  laws,  without  being 
obliged  to  suffer  the  disastrous  consequences  sure  to 
follow. 

Indeed,  the  banking  disasters  of  Italy  may  be  con- 
sidered as  typical  repetitions  of  those  which  had  already 
happened  in  other  countries.  What,  for  example,  is 
the   substantial   difference   between   the   large   subsidies 


National     Monetary     Commission 

given  by  the  Italian  banks  of  issue,  particularly  the 
Banca  Nazionale,  to  the  building  industry  (and,  in  gen 
eral,  to  town  and  country  property)  and  the  disastrous 
application  of  the  theory  of  John  Law?  And  as  for  the 
paper  circulation  representing  government  debts,  is  this 
by  chance  an  Italian  specialty  or  invention? 

On  the  contrary,  it  must  be  stated  with  regard  to  this 
last  point,  that  while  the  Italian  Government  has  within 
a  few  years  reimbursed  the  banks  for  the  loans  they  had 
made  it,  and  at  present  has  in  circulation  only  its  notes, 
almost  all  governments  are  still  to-day  and  probably 
always  will  be  debtors  to  the  banks  of  issue  for  large 
amounts,  although  some  of  them  have  their  own  notes 
in  circulation  as  well. 

But  the  stormy  vicissitudes  of  Italian  banks  are  par- 
ticularly interesting,  not  only  because  of  the  various 
moral,  political,  and  economic  elements  which  caused  them, 
each  of  which  has  a  special  character  and  furnishes  the 
theme  for  a  special  study,  but  also,  since  being  recent, 
they  gain  that  greater  importance  possessed  by  things 
and  events  that  are  closer  in  time  and  space. 

In  fact,  the  banking  crises  experienced  by  other  coun- 
tries had  come  to  be  considered  ancient  history,  and 
were  almost  forgotten.  Besides,  the  opinion  had  pre- 
vailed for  some  time  past  that  the  examples  of  the 
ruinous  effects  of  the  bad  regulation  of  banks  of  issue 
would  prevent,  up  to  a  certain  point,  the  repetition  of 
past  errors. 

It  cannot  be  denied,  of  course,  that  banking  crises 
have  gradually  become  less  frequent  and  less  serious,  in 
spite  of  the  increased  work  that  the  banks  of  issue  are 


The      Banks      of     Issue      in      Italy 

obliged  to  do  to  satisfy  the  greater  necessities  of  trade 
and  the  progressive  growth  of  economic  activity.  On  the 
one  hand  the  complicated  mechanism  of  banks  and  credit 
is  at  present  developed,  especially  in  countries  that  are 
more  advanced  economically,  so  as  to  reduce  to  its  small- 
est proportions  the  use  of  metallic  and  paper  money  in 
circulation,  by  means  of  the  extensive  employment  of 
other  means  of  exchange  and  the  enormous  increase  of 
clearing  houses;  while,  on  the  other  hand,  the  regulations 
relating  to  the  issue  of  paper  money  have  become  more 
rigid  and  severe,  thus  diminishing  the  probability  of  the 
harmful  expansion  of  the  paper  currency  and  the  abuse  of 
credit. 

What  is  more,  the  ease  and  promptness  with  which  the 
market  of  one  country  can  enter  into  business  relations 
with  markets  of  other  countries  and  be  assisted  by  them, 
and  the  sohdarity  which  has  come  about  among  the 
great  international  financial  powers,  frequently  operate 
with  efficiency  and  speed  to  prevent  crises  or  lessen  their 
gravity,  intensity,  and  duration. 

It  is  evident,  however,  that  this  help  can  be  given  only 
when  it  is  a  question  of  crises  of  a  transitory  nature, 
which  do  not  destroy  to  the  very  foundations  the  eco- 
nomic and  financial  edifice  of  a  country,  since  no  real 
aid  can  be  obtained  when  the  crisis  extends  to  all  the 
vital  organs  of  a  country,  and  especially  when  the  banks 
of  issue,  which  represent  the  great  motive  power  of  eco- 
nomic life,  are  themselves  injured  and  deranged,  just  as 
was  the  case  in  Italy  in  1893. 

Indeed,  the  situation  of  these  banks,  as  revealed 
in   that  year   at   the   time   of  the   failure   of   the   Banca 


National    Monetary     Commission 

Romana,  showed  clearly  that  they  were  in  a  state  of 
insolvency. 

And  I  should  like  to  sa}^  here  that  in  accepting  the  very 
flattering  invitation  sent  me  by  the  Honorable  Senator 
Aldrich  to  write  for  the  United  States  Monetary  Commis- 
sion a  report  on  the  principal  facts  in  the  history  of  banks 
and  credit  in  Italy,  I  have  determined  to  treat  them  with 
all  candor  and  to  express  with  great  frankness  my  critical 
opinion  concerning  them;  and  this  not  only  because  of 
due  regard  for  historical  accuracy  and  impartiality,  but 
also  because  of  a  sentiment  of  patriotic  pride.  Truly, 
charitable  omissions  and  clever  concealments  would  not 
only  not  be  in  the  least  justified  here  by  the  desire  to 
avoid  injuring  the  credit  of  the  country,  now  set  on  a  solid 
basis,  but  they  would  take  away  from  the  picture  of 
Italian  banking  crises  the  valuable  effects  of  light  and 
shade;  they  would  strike  out  from  the  economic  history 
of  Italy  pages  full  of  instructive  interest  and  at  the  same 
time  valuable  in  showing  the  work  accomplished  in  Italy 
by  the  Government,  Parliament,  and  the  banks  of  issue 
themselves  in  making  possible  the  really  amazing  reform 
of  the  circulation  of  the  country. 

And,  on  the  other  hand,  is  it  not  perhaps  creditable  to 
be  able  to  gain  salutary  instruction  from  past  errors  ?  Is 
it  not  useful  to  show  that  the  wisdom  born  of  experience 
furnishes  a  safeguard  against  the  danger  of  committing  in 
future  still  graver  errors  ? 

For  it  seems  almost  inevitable  that  all  countries  must 
in  these  matters  pay  tribute  to  inexperience;  that,  espe- 
cially at  the  beginning  of  their  political  career,  they  must 
go  through  difficult  ordeals  in  the  midst  of  which  they  are 


xo 


The      Banks      of     Issue      in      Italy 

battered  and  scarred.  All  countries  have,  in  fact,  passed 
through  financial,  economic,  and  monetary  hurricanes; 
all  have  passed  through — many  are  still  passing  through — 
the  anxiety  of  financial  deficits,  for  which  they  must 
provide  either  by  seeking  in  forms  apparently  less  unpop- 
ular new  sacrifices  for  the  taxpayers  or  else  by  increasing 
recklessly  the  amount  of  the  public  debt;  all  have  been 
smitten  by  the  scourge  of  forced  currency. 

Italy  should  not,  therefore,  be  reproached  too  harshly 
for  not  being  able  to  profit  by  the  experience  of  others 
and  making  the  same  mistakes  that  other  countries  had 
already  made.  This  is  especially  true  because  at  the  time 
of  its  political  unification  Italy  was  destitute  of  every- 
thing, and  had  to  attack  and  solve  vast  and  difficult 
problems  which  involved  enormous  expenditures.  It  had 
to  organize  the  state  executive,  unifying  the  different 
systems  in  force  in  the  various  preexisting  states;  it  had 
to  provide  for  organizing  an  army  and  navy ;  for  building 
railroads  and  completing  public  works  made  peculiarly 
costly  by  the  special  characteristics  of  the  country,  tra- 
versed from  end  to  end  as  it  is  by  the  Apennine  and  Alpine 
ranges.  Everything,  then,  had  to  be  evolved  from  the 
existing  confusion  in  all  that  related  to  credit,  circulation, 
and  financial-economic  institutions  in  general. 

Even  though  in  taking  the  first  steps  of  its  national  exist- 
ence Italy  was  not  able  to  advance  rapidly  and  surely  in 
the  high-road,  and  if  in  accomplishing  the  immense  work 
that  presented  itself  the  nation  did  not  succeed  in  avoiding 
grave  errors,  it  certainly  deserves  all  due  allowance,  because 
the  great  good  it  has  accomplished  since  then  overcame  the 
evil  in  such  a  manner  as  to  make  it  disappear  completely. 


National    Monetary     Commission 

And  in  what  particularly  concerns  the  vicissitudes  of 
banking,  circulation,  and  credit  in  Italy  it  may  indeed  be 
affirmed  that  they  would  have  been  less  stormy  if  from 
the  time  the  country  gained  a  political  constitution  it  had 
been  able  to  count  upon  the  valuable  aid  of  a  single 
powerful  bank  of  issue,  a  regulator  of  the  circulation 
and  a  strong  defense  for  the  State  and  the  people  in 
moments  of  difficulty  and  crises. 

Adolphus  Wagner,  passing  in  review  the  virtues 
and  defects  of  plurality  and  unity  in  the  issue  of  paper 
money,  has  acknowledged  that  one  of  the  advantages  of 
unity  consists  in  rendering  greater  service  in  times  of 
crises,  which  constitutes  "without  doubt  the  greatest  and 
most  decisive  advantage  that  a  great  central  bank  pre- 
sents in  comparison  with  a  number  of  small  banks, 
especially  in  what  concerns  the  right  of  issue."  And  he 
has  also  acknowledged  that  a  great  central  bank  can  give 
strong  support  to  the  State  and  its  finances  in  times  of 
political  crises,  a  thing  which  the  smaller  banks  can  not 
do,  or  at  least  can  not  do  adequately,  as  it  is  proved  by 
the  comparison  between  what  happened  in  France  in 
1 870-1 8 71  and  in  the  United  States  in  1 861-1864;  and 
we  may  now  add,  in  1907  also. 

To  these  and  other  most  valid  and  truly  conclusive  argu- 
ments in  favor  of  the  unity  of  issue,  the  partisans  of  plural- 
ity are  able  to  oppose  and  echo  nothing  but  phrases  as 
full  of  rhetoric  as  they  are  empty  of  content.  They  pro- 
test fiercely  in  the  name  of  liberty  against  the  establishing 
of  odious  monopohes,  as  if  the  unity  of  issue  signified  a 
monopoly  in  the  exercise  of  credit,  and  as  if  it  were  not 
for  the  common  interest  to  have  a  great  institution  as  a 


The      Banks      of     Issue      in      Italy 

moderator  of  the  currency,  a  watchful  guardian  against 
foreign  and  domestic  enemies,  and  a  ready  aid  in  case  of 
economic,  financial,  and  monetary  disturbances. 

Nevertheless,  in  spite  of  the  fact  that  experience  has 
shown,  in  a  decisive  way,  the  superiority  of  the  unity  of 
issue,  there  is  perhaps  nothing  more  difficult  to  bring 
about  than  this  unity,  as  may  be  seen  from  the  long  strug- 
gle to  prevent  it  in  every  country;  in  some  of  them  it 
would  not  have  come  about  even  then  without  the  impetus 
given  by  serious  disasters  of  a  political  or  economic  char- 
acter. 

The  difficulties  arise  not  only  from  the  prevalence  of 
liberal  standards  which  are  entirely  out  of  place  in  this 
matter,  but  still  more  from  the  obstinate  resistance  of  the 
network  of  interests  which  have  established  themselves 
and  grown  up  under  the  regime  of  plurality. 

Even  Italy,  which  at  the  beginning  of  its  political  career 
certainly  needed  to  create  a  sound  organ  of  credit  to  satisfy 
more  fully  the  economic  needs  of  the  country,  could  not 
bring  itself  to  the  point  of  settling  the  question  in  the  way 
public  interest  demanded. 

Italy,  although  keeping  three  institutions,  has  also 
been  able  since  then,  through  unity  of  laws  and  the  work- 
ing together  of  the  men  concerned,  to  realize  in  substance 
the  benefits  of  the  unity  of  issue.  Yet  it  should  in 
all  justice  be  stated  that  Italy  would  not  have  reached 
this  point  without  the  aid  of  an  exceedingly  serious 
and  melancholy  event,  namely,  the  disastrous  failure  of 
the  Banca  Romana. 

It  is  easy  to  understand,  therefore,  how  arduous  the 
struggle  must  be  in  the  United  States  to  arrive  at  the 


13 


National     Monetary     Commission 

organization  of  a  great  central  bank  of  issue,  the  necessity 
of  which  has  been  made  evident  by  former  and  recent 
disasters. 

However,  the  active  investigation  which  is  being  pursued 
by  men  of  courage  with  lofty  patriotic  purpose  gives 
assurance  that  the  fight  will  end  in  the  triumph  of  the 
good  cause — an  outcome  which  Europe  joins  in  earnestly 
wishing  for  America.  The  sincerity  of  this  wish  the 
Americans  can  not  question,  since  it  is  not  entirely  disin- 
terested, as  the  difficulties  of  the  American  money  market 
have  a  reflex  action  on  European  markets,  causing  them 
periodical  disturbances. 

Rome,  January,  igio. 

Tito  Canovai. 


14 


THE  BANKS  OF  ISSUE  IN  ITALY. 


Chapter  I. 

THE    ORIGIN    OF   THE    ITALIAN    BANKS    OF    ISSUE. 

No  country,  perhaps,  presents  such  a  diversity  and 
variety  as  Italy  of  banks  originally  organized  or  after- 
wards authorized  to  issue  bank  notes.  This  is  due  par- 
ticularly to  the  historical  subdivision  of  the  country  into 
various  States;  these  had  their  own  institutions,  which 
were  successively  united  to  others,  and  each  of  these  had 
different  characters,  prerogatives,  and  privileges. 

To  outline  briefly,  therefore,  the  origins  of  the  Italian 
banks  of  issue  is  not  simply  to  satisfy  historical  curiosity ; 
it  is,  in  many  cases,  to  give  at  the  same  time  the  reasons 
for  the  vicissitudes  through  which  these  banks  passed 
and  to  add  a  valuable  contribution  to  the  study  of  the 
regulation  of  the  institutions  to  which  is  intrusted  the 
most  delicate  function  of  issuing  paper  money. 

Just  as  the  Bank  of  Italy,  created  in  virtue  of  the  law 
of  August  ID,  1893,  was  made  up  of  the  fusion  of  three 
preexisting  banks — that  is  to  say,  the  Banca  Nazionale 
nel  Regno,  the  Banca  Toscana,  and  the  Banca  Toscana 
di  Credito  per  le  Industrie  e  il  Commercio — so,  with  the 
exception  of  the  last,  the  two  other  banks,  as  well  as  the 
banks  of  Naples  and  Sicily,  still  in  existence,  resulted 
from  the  fusion  of  smaller  institutions. 

39781°— II 2  15 


National    Monetary     Commission 

The  Banca  Nazionale  nel  Regno,  the  biggest  of  all, 
grew  from  the  union,  in  the  year  1849,  of  the  Banca  di 
Sconti,  Depositi  e  Conti  Correnti,  located  at  Genoa, 
with  the  Bank  of  Turin,  each  created  for  a  period  of 
twenty  years,  with  letters  patent  from  the  governor  of 
the  Sardinian  States,  the  first  on  March  16,  1844,  the 
second  October  16,  1847.  Each  bank  had  a  capital  of 
4,000,000  lire,  divided  into  4,000  shares  at  i  ,000  lire  each. 
The  tvv^o  banks  were  authorized  to  carry  on  banking 
operations,  and  also  to  issue  notes  payable  at  sight  and 
to  bearer  up  to  three  times  the  amount  of  the  metallic 
money  in  the  coffers. 

By  a  legislative  decree  dated  September  7,  1848,  the 
Government  of  the  Sardinian  States  asked  the  two  banks 
for  a  loan  of  20,000,000  lire,  freeing  them  from  the  obli- 
gation of  redeeming  notes  in  coin. 

By  the  agreements  stipulated  September  26  and  Octo- 
ber 3,  1849,  approved  with  the  reservation  of  being 
converted  into  a  law  by  royal  decree  of  December  14, 
1849,  the  fusion  was  arranged  of  the  banks  of  Genoa 
and  Turin,  and  a  bank  was  created  which  took  the  name 
of  the  Banca  Nazionale. 

The  capital  v/as  then  8,000,000  lire,  divided  into  8,000 
shares  of  1,000  lire  each.  The  bank  was  to  have  the 
grant  for  a  period  of  thirty  years  and  the  privilege  of 
issuing  notes  up  to  the  amount  of  three  times  the  metallic 
reserve. 

The  agreements  and  the  royal  decree  were  ratified  by 
the  law  of  July  9,  1850,  which  provided  by  the  issue  of 
state  obligations  to  pay  back  whatever  still  remained  of 
the  loan  of  20,000,000  lire  obtained  from  the  two  banks 


16 


The      Banks      of     Issue      in      Italy 

of  Genoa  and  Turin,  and  arranged  that  the  Banca  Nazionale 
should  within  three  months  reduce  its  circulation  to 
22,000,000  lire,  with  the  privilege  of  raising  it  afterwards  to 
a  maximum  of  32,000,000  lire,  while  it  gradually  withdrew, 
with  the  reimbursement  of  the  loan,  the  corresponding 
amount  from  circulation. 

The  capital  of  the  bank  was  raised  from  8,000,000  lire  to 
32,000,000  lire  by  virtue  of  the  law  of  June  11,1852,  which 
stipulated  that  the  bank  should  pay  out  to  the  State 
15,000,000  lire  in  return  for  treasury  bonds  and  certificates 
of  government  rentes. 

From  32,000,000  lire  the  capital  was  raised  to  40,000,000 
lire  by  the  new  charter  of  the  bank,  approved  by  legis- 
lative decree  of  October  i,  1859.  In  the  charter  it  was 
stipulated  that  the  bank  should  hold  the  meetings  of 
stockholders  at  Genoa,  Turin,  and  Milan  alternately,  in 
which  cities  had  been  established  branches,  besides  the 
subbranches  opened  in  other  cities.  To  the  stockholders' 
meetings  were  admitted  only  those  who  had  owned  fifteen 
or  more  shares  for  at  least  six  months. 

In  the  year  i860  was  authorized  the  fusion  with  the 
Banca  Nazionale  of  the  Banca  di  Parma,  which  had  a 
capital  of  500,000  lire,  of  which  300,000  lire  were  paid  in, 
and  of  the  Banca  di  Bologna  (or  Banca  delle  Quattro 
Legazioni),  which  had  a  capital  of  200,000  Roman  scudi, 
or  about  1,075,000  lire. 

By  the  royal  decree  of  June  2,  1865,  was  approved  a 
decision  of  the  stockholders'  meeting  of  the  bank  raising 
the  capital  from  40,000,000  to  100,000,000  lire.  The 
royal  decree  of  October  23,  1865,  ratified  an  agreement 
made  between  the  Government  and  the  Banca  Nazionale 


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National    Monetary     Commission 

for  the  assumption  on  the  part  of  the  bank  of  the  treasury 
service  of  the  State;  but  the  Hvely  opposition  raised  in 
Parliament  caused  the  royal  decree  to  remain  without 
effect. 

Meanwhile,  pressed  by  the  urgent  necessities  imposed 
by  the  political  situation,  the  Government,  by  royal  decree 
of  May  I,  1866,  asked  the  Banca  Nazionale  for  a  loan  of 
250,000,000  lire,  freeing  it  from  the  obligation  of  redeeming 
notes  in  specie  by  proclaiming  the  forced  currency  of  the 
bank  notes.  Then  came  the  annexation  to  the  ItaHan 
State  of  the  Venetian  provinces  and  the  Banca  Nazionale 
founded  a  branch  at  Venice,  substituting  this  branch  for 
the  StabiHmento  Mercantile  Veneto  which  the  bank  took 
over,  together  with  its  capital  of  2,100,000  Austrian 
florins.  There  was  a  question  at  that  time  of  the  fusion 
of  the  Banca  Nazionale  with  the  Banca  Nazionale 
Toscana,  but  the  negotiations  were  not  concluded.  And 
as  the  needs  of  the  State  were  becoming  urgent,  the  Gov- 
ernment applied  to  the  bank  again,  under  the  law  of 
August  II,  1870,  for  another  100,000,000  lire  guaranteed 
by  bonds  on  ecclesiastical  property,  and  subsequently 
122,000,000  lire  more,  of  which  50,000,000  were  to  be  in 
gold.  For  the  sum  of  450,000,000  lire,  which  was  the 
amount  then  remaining  of  the  State  debt  to  the  bank, 
the  latter  was  freed  from  the  obligation  of  keeping 
the  prescribed  metalHc  reserve,  and  was  authorized  to 
increase  its  circulation  from  750,000,000  to  800,000,000 
lire.  The  bank  had  as  guaranty  for  its  credit  333,000,000 
lire  in  bonds  on  ecclesiastical  property  and  received  6 
per  cent  interest  on  the  sums  loaned  to  the  State. 

But  the  needs  of  the  latter  were  not  yet  satisfied,  and 
by  the  law  of  August  28  of  the  same  year  the  Government 

18 


The      Banks      of     Issue      in      Italy 

asked  the  bank  for  40,000,000  lire  more,  in  return  for 
treasury  bonds,  at  the  same  rate  of  interest  and  under 
the  same  condition  of  freeing  the  bank  from  the  necessity 
of  metalhc  guaranty. 

This  operation  was  destined  to  be  only  a  brief  forerunner 
of  other  much  larger  ones  that  were  to  follow.  And  in  fact, 
by  the  law  of  June  16,  1871,  the  bank  was  asked  to  make 
another  loan  of  1 50,000,000  lire,  guaranteed  by  government 
5  per  cent  rentes  ceded  at  the  price  of  70  per  cent,  with  the 
privilege  of  a  corresponding  increase  of  circulation  without 
metallic  guaranty;  and  by  the  law  of  April  19,  1872,  an 
agreement  between  the  Government  and  the  bank  was 
ratified,  according  to  which  the  latter  engaged  to  lend  the 
State  300,000,000  lire  more,  with  a  corresponding  increase 
of  its  own  circulation,  and  was  authorized  to  raise  its  cap- 
ital from  100,000,000  to  200,000,000  lire.  In  that  same 
year  new  negotiations  were  entered  into  for  the  fusion  of 
the  Banca  Nazionale  Toscana,  but  they  did  not  result  in 
a  specific  agreement.  By  degrees,  as  the  destiny  of  Italy 
took  shape,  and  the  scattered  branches  became  grafted  to 
the  sturdy  trunk  of  the  ancient  provinces  under  the  rule  of 
the  dynasty  of  Savoy,  the  Banca  Nazionale,  following  the 
favorable  fortunes  of  the  Italian  army,  extended  its  field 
of  action  over  the  whole  country  by  means  of  branches 
{sedi)  and  subbranches  (succursali).  Aiding  the  State 
in  its  every  need,  with  an  impetuosity  and  eagerness 
that  seemed  reckless,  so  that  if  the  fate  of  Italy  had 
proved  adverse  it  would  have  involved  the  bank  in  com- 
plete ruin,  it  fully  justified  its  title  of  "  Banca  Nazionale," 
for  such  it  was  then,  and  such  it  always  remained  in  its 
every  act. 


19 


National    Monetary     Commission 

Nevertheless,  there  was  no  lack  of  criticism,  as  sharp  as 
it  was  unjustified,  of  the  action  of  the  Banca  Nazionale; 
but  when  the  partisan  wrath  let  loose  by  a  morbid  sen- 
timent of  grotesque  bank  hatred,  and  fed  and  excited 
by  rival  interests  was  once  dispelled,  a  just  and  calm 
judgment  prevailed.  An  impartial  history  has  placed 
Senator  Bombrini,  who  v/as  the  founder  of  the  Banca 
Nazionale,  in  the  number  of  those  who  cooperated  vigor- 
ously and  efficiently  in  the  field  of  finance  in  the  great 
work  of  the  resurrection  of  Italy. 

Like  the  Banca  Nazionale  nel  Regno,  the  Banca  Naz- 
ionale Toscana  was  made  up  of  the  fusion  of  various  small 
banks  existing  in  Tuscany;  such  as  the  Banca  di  Sconto 
di  Firenze,  with  a  capital  of  1,000,000  lire,  which  had  suc- 
ceeded the  Cassa  di  Sconto  created  by  the  grand  ducal 
government  with  its  own  capital;  the  Banca  di  Sconto  di 
Livorno,  with  a  capital  of  2,000,000  lire;  the  banks  of 
Siena,  Arezzo,  Pisa,  and  Lucca.  This  fusion,  which  was 
begun  in  1857  with  the  two  banks  of  Florence  and  Leg- 
horn {Livorno)  only,  was  completed  in  i860. 

In  1870  the  Banca  Nazionale  Toscana  had  a  nominal 
capital  of  30,000,000  lire,  of  which  21,000,000  lire  were 
paid  up.  It  was  chartered  as  an  institution  of  issue,  a 
privilege  possessed  also  by  the  smaller  banks  that  were 
united  to  create  it. 

To  complete  the  group  of  Italian  banks  of  issue  which 
made  up  the  Bank  of  Italy,  there  is  still  to  be  mentioned 
the  little  Banca  Toscana  di  Credito  per  il  Commercio  e  le 
industrie  dTtalia,  which  was  created  in  i860,  by  decree  of 
the  provisional  government  of  Tuscany.     The  bank  was 


The      Banks      of     Issue      in      Italy 

constituted  with  a  capital  of  40,000,000  lire,  of  which 
5 ,000,000  lire  were  paid  up.  It  did  not  come  into  existence 
as  an  institution  of  issue,  properly  speaking,  since  it 
was  authorized  to  issue  cash  certificates  {buoni  di  cassa) 
only. 

There  now  remain  to  be  described  the  origins  of  the 
Banca  Romana  and  its  situation  until  the  year  1873,  at 
which  time  ends  the  first  period,  which  may  be  called  the 
chaotic  period,  of  the  banks  of  issue  in  Italy.  The  origin 
of  the  Banca  Romana  goes  back  to  the  year  1850,  when 
by  papal  decree  was  founded  the  Banca  dello  Stato 
Pontifico  in  place  of  a  Roman  bank  which  had  not  been 
successful.  The  charter,  after  the  example  of  other 
banks  of  issue  founded  in  other  Italian  States,  was  given 
for  thirty  years.  The  bank  had  the  absolute  monopoly 
of  banking  operations  and  of  the  issue  of  bank  notes  in 
the  Papal  State,  but  this  bank  likewise  did  not  prosper; 
so  that  the  papal  government,  in  1856,  after  fixing  the 
daily  redemption  of  bank  notes  in  metallic  money  at 
6,000  scudi,  was  obliged  later  to  intervene  to  guarantee 
the  notes  that  it  had  in  circulation. 

From  the  start  the  Banca  dello  Stato  Pontifico  dis- 
tinguished itself  for  the  recklessness  with  which  it  com- 
mitted abuses  of  all  kinds.  Instead  of  amortizing  the  bills 
of  exchange  not  paid  on  maturity,  on  which  there  could 
either  be  no  hope  of  recovering,  or  else  the  probability  of 
recovering  on  only  a  very  limited  part,  the  bank  renewed 
of  its  own  accord  in  its  entirety  the  discount  ledger  as 
if  it  contained  paper  sure  of  recovery.  Meanwhile,  with- 
out paying  the  least  attention  to  its  condition,  the  bank 
continued  to  distribute  dividends  for  not  less  than  5  per  cent 


National    Monetary     Commission 

of  the  paid-up  capital,  without  increasing  the  reserve  by 
the  deduction  of  profits  prescribed  by  law,  and  it  bought 
on  the  market  its  own  stock.  At  the  end  of  1870  the 
bank  owned  shares  amounting  to  about  2,000,000  lire, 
whereby  the  capital  might  be  considered  reduced  to  about 
3,000,000  lire,  which,  however,  did  not  exist,  because  the 
losses  ascertained  amounted  to  about  9,000,000  lire. 

When  in  1870  the  Papal  State  w^as  annexed  to  Italy, 
the  bank,  in  view  of  its  known  condition,  ought  to 
have  been  liquidated  or  absorbed  by  the  Banca  Nazionale. 
There  were,  in  fact,  negotiations  with  a  view  to  this, 
but  they  had  no  practical  result. 

The  Italian  Government,  for  reasons  of  a  political 
nature,  did  not  wish  to  order  the  liquidation  of  the  only 
banking  institution  existing  in  the  former  Papal  State, 
but  wished  instead  to  reorganize  it,  with  especially  favor- 
able provisions,  that  under  skillful,  cautious,  and  correct 
management  would  have  infused  new  life  and  vigor  into 
the  institution,  which  took  the  name  of  the  Banca 
Romana. 

By  royal  edict  of  December  2,  1870,  it  was  decreed  that 
the  bank,  giving  up  the  complete  privilege  of  issue  in  the 
former  Papal  State,  should  have,  by  w^ay  of  indemmity, 
2,000,000  lire  from  other  institutions  wishing  to  open 
branches  and  agencies  in  Rome  and  the  Roman  province, 
or  those  which  should  be  created  and  founded  there. 

The  capital  of  the  Banca  Romana  was  fixed  at  the 
amount  of  10,000,000  lire,  represented  by  10,000  shares 
at  1,000  lire  each.  The  bank  was  authorized  to  perform 
all  banking  operations  and  to  issue  bank  notes,  and  under- 
took to  furnish  the  Government  the  sum  of  4,000,000  lire 


The      Banks      of     Issue      in      Italy 

at  3  per  cent    interest,  secured    by  treasury  bonds  and 
certificates  of  government  rentes. 

Having  finished  the  outUne  of  the  origins  and  condi- 
tions of  the  ItaHan  banks  of  issue  organized  under  the 
form  of  joint-stock  companies,  let  us  now  examine  the 
origins  of  the  two  banks  of  Naples  and  Sicily,  which  still 
keep  the  privilege  of  issue  and  present  a  character  entirely 
peculiar  to  Italy,  since  there  is  no  example  in  other  coun- 
tries of  similar  institutions. 

Although  the  nature  and  character  of  these  two  banks 
were  and  still  are  of  a  very  special  kind,  yet  their  process 
of  formation  was  not  unlike  that  of  the  other  principal 
banks  of  issue,  since  they  too  grew  and  developed  by 
means  of  fusions  and  by  absorbing  other  institutions 
originally  unimportant. 

The  Bank  of  Naples  is  the  oldest  bank  of  issue  in 
Italy,  although  it  should  be  stated  that  the  privilege  of 
issuing  bank  notes,  properly  so-called,  was  conferred  on  it 
by  the  law  of  April  30,  1874.  Having  been  created  in 
1 796  by  the  fusion  of  seven  pawn  banks  {Banchi  Pii,  0 
Monti  di  Pegno)  founded  by  private  individuals  toward 
the  end  of  the  sixteenth  century  to  fight  usury,  which  was 
rampant  at  Naples,  the  bank  had  and  continued  to  have 
for  a  long  time  the  predominating  character  of  an  insti- 
tution of  charity  and  beneficence.  In  the  articles  of 
foundation  of  the  seven  pawn  banks  it  was  settled  that 
the  greater  part  of  the  profits  should  be  used  in  works  of 
charity  in  Naples — in  making  loans  to  the  very  needy, 
without  interest,  in  giving  dowries  to  poor  girls,  in  freeing 
people  imprisoned  for  debt,  in  ransoming  Christians  who 


23 


National    Monetary     Commission 

had  been  captured  by  infidels,  and,  in  general,  in  aiding 
the  city  of  Naples  in  its  needs. 

By  royal  edict  of  Ferdinand  IV  dated  September  29, 
1794,  the  union  was  decreed  of  the  seven  pawn  banks. 
The  bank,  united  and  enlarged,  suddenly  came  into  favor 
with  the  State  and  Court  which  drew  upon  it,  in  order 
to  provide  for  their  own  needs,  and  also  for  those  of  their 
favorites,  with  the  money  which  had  been  deposited  with  it 
because  of  the  great  confidence  it  enjoyed.  And  already, 
by  1794,  the  bank  had  been  authorized  to  put  in  circu- 
lation inconvertible  certificates  of  credit  for  35,000,000 
ducats  in  place  of  like  sums  taken  by  the  State  and 
Court. 

The  political  disturbances  that  agitated  the  Kingdom 
of  Naples  toward  the  end  of  the  eighteenth  century  did 
the  rest.  The  bank,  in  spite  of  the  withdrawals  it  had 
suffered,  enjoyed  nevertheless  an  apparently  prosperous 
existence,  and  kept  in  every  way  its  character  until 
1 8 16,  when  by  decree  of  December  2  the  revocation  was 
pronounced  of  all  preceding  acts  concerning  the  bank, 
and  it  was  arranged  that  after  January  i,  181 7,  it  should 
assume  the  name  of  Bank  of  the  Two  Sicilies,  and  should 
be  divided  into  two  distinct  sections — one,  called  Cassa 
di  Corte,  for  the  treasury  service  of  the  State,  public 
works,  and  municipalities;  the  other,  called  Cassa  dei 
Privati,  for  the  banking  service  of  private  individuals. 
From  that  time  forth,  of  course,  except  for  sums  of  small 
importance,  the  profits  of  the  bank  ceased  to  be  used 
for  works  of  charity  and  beneficence. 

To  give  an  idea  of  the  situation  to  which  the  Bank  of 
Naples  was  gradually  reduced,  it  will  suffice  to  say  that 


24 


The      Banks      of     Issue      in      Italy 

in  the  year  1863  Minister  Manna  presented  to  King  Vic- 
tor Emmanuel  II  a  resolution  reforming  and  reorganizing 
the  bank,  which,  as  he  declared  in  his  report,  could  no 
longer  continue  under  the  condition  to  which  it  had 
been  reduced  by  the  preceding  Government.  From  be- 
ing founded  in  the  beginning  for  the  benefit  of  private 
individuals  and  for  certain  works  of  charity,  it  had 
become,  little  by  little,  an  organization  closely  connected 
with  and  dependent  upon  the  state  finances,  which  the 
treasury  drew  upon  largely. 

The  Bank  of  Naples  created  and  developed  certain 
instruments  of  circulation  somewhat  different  from  checks 
and  bank  notes,  properly  so  called;  that  is  to  say,  cer- 
tificates of  credit,  cash  orders,  and  orders  for  small 
amounts,  which  were,  substantially,  certificates  of  sums 
deposited  in  its  coffers,  and  were  all  of  them  used  as  a 
means  of  payment,  and  also  for  the  transmission  of 
money  from  one  place  to  another. 

Forced  currency  having  been  decreed  in  1866,  the  privi- 
lege was  granted  of  giving  and  receiving  the  certificates 
of  credit  and  cash  orders  of  the  bank  as  current  money, 
at  their  nominal  value,  in  all  the  southern  continental 
and  island  provinces.  By  the  law  of  vSeptember  3,  1868, 
the  bank  was  authorized  to  issue  notes  of  i  lira,  and  sub- 
sequently it  was  also  authorized  to  issue  cash  orders  for 
0.50,   I,   2,   5,   10,   20,   50,   100,   250,   500,  and   1,000  lire. 

The  Bank  of  Sicily  came  from  the  union  of  the  two 
Casse  di  Corte  (Court  Banks)  founded  by  royal  Bourbon 
decree  of  April  17,  1843,  one  situated  at  Palermo,  the  other 
at  Messina,  and  controlled  by  the  Bank  of  Naples.  The 
two  Court  Banks  were    united    in    a    single    institution 


25 


National    Monetary     Commission 

which  was  independent  of  the  Bank  of  Naples  and  took 
the  name  of  "Banco  Regio  dei  reah  domini  al  di  la  del 
Faro"  (Royal  Bank  of  the  King's  Domain  in  Sicily). 
Like  the  Bank  of  Naples,  the  Banco  Regio  di  SiciHa 
received  on  deposit  sums  from  the  treasury  and  from  the 
public  administration  and  also  from  institutions  of  charity 
and  beneficence,  which  were  obliged  to  deposit  with  it- 
The  Banco  Regio  issued  cash  orders  (polizze)  transmissible 
by  transfers,  also  used  by  private  individuals.  .  It  issued 
likewise  certificates  of  credit  {fedi  di  credito)  representing 
sums  deposited  with  it,  and  these  were  declared  not  subject 
to  seizure  and  sequestration.  It  retained  the  character 
of  deposit  bank  until  1867. 

Just  as  the  Bourbon  Government  had  gained  access  to 
the  cash  boxes  of  the  Bank  of  Naples,  so  it  reached  those 
of  the  Bank  of  Sicily,  from  which  it  borrowed  sums  of 
money,  being  imitated  in  this  practice  by  the  Dictatorial 
Government  also.  A  royal  decree  of  May  i,  1870,  pro- 
vided for  paying  the  bank  the  sum  of  2,876,301.78  lire 
for  which  it  was  creditor. 

This  bank  was  authorized  by  ministerial  decree  of 
January  4,  1872,  to  issue  certificates  of  credit  up  to  three 
times  the  amount  of  its  metallic  reserve. 

* 

The  conditions  of  the  institutions  of  issue  and  the 
paper  currency  in  Italy  were  therefore  almost  always 
abnormal  and  unorganized,  since  there  was  a  mixture  of 
institutions,  different  in  nature  and  privilege,  and  a 
hybrid  circulation,  partly  private  and  partly  belonging 
to  the  State,  which  could  not  truly  serve  the  economic 
and  monetary  conditions  of  the  country.     In  addition  to 

26 


The      Banks      of     Issue      in      Italy 

about  800,000,000  lire  in  notes  issued  for  the  State,  there 
were,  in  1873,  more  than  700,000,000  Hre  in  circulation 
issued  by  the  banks  of  issue  on  their  own  account.  These 
two  figures  fully  justified  the  high  rate  of  exchange,  which 
was  hovering  in  the  neighborhood  of  no,  with  a  tendency 
to  rise.  The  occasion  for  the  rise  of  agio  came  with  the 
crisis  which  broke  out  in  Austria  that  same  year,  and  was 
reechoed  in  the  other  countries  of  Europe,  including  Italy, 
and  in  the  United  States.  Italy  had  to  suffer  from  it 
particularly  because  of  the  conditions  of  the  domestic 
currency,  which  were  such  as  to  arouse  serious  anxiety. 


27 


Chapter  II. 

THE    ASSOCIATION    OF   THE    BANKS   OF   ISSUE. 

In  the  absence  of  precise  legislation  there  had  grown 
up  in  Italy  meanwhile  all  sorts  of  abuses  which  had  taken 
the  form  of  a  veritable  glut  of  bank  notes  issued  by  credit 
institutions,  people's  banks,  and  even  by  merchants  and 
private  individuals,  so  that  the  country  was  flooded  with 
paper  money  of  all  kinds  and  quaHties,  down  to  denomi- 
nations of  30  and  even  20  centesimi.  The  crisis  in  Italy 
was  serious,  therefore,  both  for  internal  reasons  and  con- 
ditions, and  for  the  reflex  action  of  foreign  events.  In  the 
presence  of  a  situation  that  threatened  daily  to  become 
more  grave,  the  Government  thought  it  necessary  to  inter- 
vene by  a  law  which  reorganized  the  paper  currency  and 
regulated  the  issue  of  bank  notes,  regulating  at  the  same 
time  the  circulation  of  notes  which  had  been  issued  on 
account  of  the  State. 

The  parliamentary  discussion  of  the  question  of  the 
currency  was  very  violent.  The  partisans  of  both  sides 
of  the  question  were  drawn  up  in  battle  array — on  the  one 
side  those  who  maintained  that  the  State  must  be  freed 
from  its  subjection  to  the  Banca  Nazionale  by  creating  its 
own  currency;  on  the  other  side  those  who  argued  the 
danger  of  investing  the  State  with  the  power  to  create 
bank  notes,  a  power  which  it  would  easily  be  led  to  abuse, 
while  they  acknowledged  that  the  credit  of  the  Banca 
Nazionale  would  cover  the  notes  issued  by  it  on  account 
of  the  State.  Confronted  by  the  conflict  of  these  oppos- 
ing tendencies,  the  Government  decided  to  resort  to  a 

28 


The      Banks      of     Issue      in      Italy 

middle  expedient,  which  could  be  approved  both  by  the 
partisans  of  state  circulation  and  those  who  preferred  a 
bank  circulation. 

The  middle  term  was  found  in  the  organizing  of  an 
association  (consorzio)  of  Banks  of  Issue,  which  included 
the  Banca  Nazionale  nel  Regno  with  the  five  other  insti- 
tutions— the  Banca  Nazionale  Toscana,  the  Banca  Tos- 
cana  di  Credito,  the  Banca  Romana,  and  the  two  banks 
of  Naples  and  Sicily.  The  association  was  to  furnish  the 
Government  i  ,000,000,000  lire  in  notes  for  denominations 
of  0.50,  I,  2,  5,  10,  20,  100,  250,  and  1,000  lire.  Of  this, 
890,000,000  lire  were  to  be  provided  within  a  year  of  the 
publication  of  the  law  and  the  remainder  subsequently 
in  accordance  with  resolutions  to  be  settled  by  the  law  of 
the  budget  or  by  special  law.  The  law  of  April  30,  1874, 
which  established  the  association,  stipulated  that  whereas 
the  notes  to  be  provided  the  Government  by  the  said 
association  should  have  forced  currency,  those  that  the 
banks  of  issue  had  the  privilege  of  issuing  on  their  own 
account  should  have  legal  currency,  and  be  redeemed  on 
demand  in  the  notes  issued  by  the  association  for  the 
account  of  the  Government,  or  in  metallic  money;  and 
after  two  years,  the  forced  currency  having  ceased,  they 
were  to  have  fiduciary  currency. 

Before  proceeding  to  examine  this  fundamental  law  of 
Italian  circulation  it  will  be  well  to  pause  to  consider  the 
error  sanctioned  by  it,  an  error  which  consists  in  main- 
taining that  in  one  single  country  there  can  be  a  circula- 
tion with  forced  currency  and  one  with  legal  currency, 
with  the  obligation  of  redeeming  bills  in  metallic  money. 
This  is  equal  to  imagining  that  in  one  single  country  there 


29 


National    Monetary     Commission 

can  exist  at  the  same  time  two  kinds  of  currency,  one 
sound  and  the  other  unsound.  Now,  in  the  conditions  of 
Italy  at  that  time,  conditions  clearly  shown  by  the  quan- 
tity of  notes  that  represented  a  loan  to  the  Government 
for  sums  greater  than  all  the  aggregate  of  notes  that  repre- 
sented banking  affairs  instead,  and  still  better  shown  by 
the  inevitable  depreciation  of  paper  money,  which  affected 
all  of  it,  the  presumption  could  not  fail  to  seem  absurd, 
and  even  unlawful,  that  the  banks  of  issue  should  redeem 
at  sight  their  own  notes  in  metallic  money.  And,  on  the 
other  hand,  the  right  of  changing  the  notes  of  the  banks 
which  had  legal  currency  for  others  having  forced  cur- 
rency, from  which  the  law  had  taken  away  the  obligation 
of  a  metallic  reserve  at  the  ratio  of  one- third,  could  not 
evidently  be  of  the  least  importance  from  a  monetary 
point  of  view,  since  anyone  who  needed  gold  to  pay  for- 
eign debts  could  not  get  it  either  for  the  notes  of  the 
banks  themselves  or  for  the  notes  of  the  association  circu- 
lating to  the  debit  of  the  State  and  with  forced  currency. 
Now,  it  may  possibly  happen,  and  it  has  happened  and 
is  still  happening  in  fact  in  various  countries,  including 
Italy,  that  a  quantity  of  State  notes  is  in  circulation  along- 
side of  and  in  competition  with  notes  of  the  banks,  without 
their  disturbing  each  other,  and  without  the  total  circu- 
lation being  subjected  to  any  depreciation;  but  that  can 
be  the  case  only  when  the  circulation  of  the  banks  is  sound 
and  rests  on  soHd  metallic  reserves,  fostering  real  com- 
mercial affairs  surely  payable  at  maturity;  and  when  the 
circulation  of  the  State  is  kept  within  limxits  that  do  not 
exceed  the  so-called  ''  fondo-morto''  of  circulation,  that  is 
to  say,  that  mass  of  bank  notes,  for  the  most  part  of  small 


30 


The     Banks     of     Issue     in      Italy 

denominations,  which  remains  stagnant  because  it  cor- 
responds to  the  necessities  of  small  transactions.  For 
this  very  reason  the  State  circulation  is  composed  princi- 
pally of  small  notes  which  cause  less  disturbance  in  the 
matters  of  redemption.  But  when,  as  was  certainly  the 
case  in  Italy  in  the  period  under  examination,  not  only 
the  banking  circulation  was  not  regulated  but  that  of  the 
State  amounted  to  an  extravagant  sum,  it  was  quite  impos- 
sible to  talk  of  circulation  with  forced  currency  and  circu- 
lation with  legal  currency.  The  distinction  was  inscribed 
in  the  banking  law  because  the  lawgiver,  by  authoritative 
act,  wished  to  assert  the  right  of  the  State  not  to  change 
the  notes,  and  the  obHgation  of  the  banks  to  change 
them;  but  it  did  not  correspond  to  the  facts,  which  were 
that  there  existed  in  Italy  one  single  mass  of  notes, 
amounting  to  a  billion  and  a  half,  composed  of  two  kinds 
of  notes,  one  to  the  debit  of  the  banks,  the  other  to  the 
debit  of  the  State,  but  all  without  exception  depreciated 
and  really  at  forced  currency. 

And  indeed,  with  exchange  at  the  above-mentioned  rate 
of  I  lo  per  cent,  and  later  in  the  same  year  of  1873  at  1 1 5.50 
per  cent,  if  the  banks  had  redeemed  the  notes  in  specie, 
their  metalUc  reserves  would  have  been  completely  ex- 
hausted in  a  few  days  and  would  have  crossed  the  frontiers. 

But  the  sophism  sanctioned  by  the  law  of  1874  was 
neither  then  nor  afterwards  an  Itahan  novelty,  since  there 
are  other  examples,  old  and  new,  in  various  countries, 
which  show  that  legislators  have  believed  and  still  beheve 
that  economic  principles  lose  all  active  efficacy  in  the  pres- 
ence of  the  power  of  an  article  of  the  law,  especially  when 
it  is  a  question  of  enactments  which  are  supposed  to  con- 

39781°— II 3  31 


National    Monetary     Commission 


duce  to  the  interests  of  the  State.  It  is  therefore  a  com- 
mon belief  that  State  bank  notes,  or  those  issued  by  the 
banks  for  the  State,  not  only  do  no  harm  to  the  monetary 
conditions,  and  consequently  the  economic  conditions  of  a 
country,  but  that  they  afford  a  proper  and  economical 
method  of  satisfying  the  needs  of  the  exchequer,  some- 
times preferable  to  loans,  which  are  more  costly. 

The  error  is  so  deep  rooted  that  it  was  not  even  re- 
marked upon  in  Spain  when  the  State  paid  the  bank  3 
per  cent  interest  on  notes  furnished  by  it.  There  is  no 
doubt  that  if  the  money  which  the  Spanish  Government 
spent  for  a  number  of  years  in  paying  interest  to  the 
bank  on  sums  furnished  by  it  up  to  a  total  of  about  a 
biUion,  had  been  used  in  paying  interest  on  certificates  of 
amortizable  government  stock,  the  question  of  Spanish 
circulation  would  have  progressed  more  rapidly  and  more 
surely  toward  a  solution  corresponding  to  the  real  needs 
of  the  country,  greatly  to  the  advantage  of  both  State 
and  people. 

But  in  spite  of  the  many  defects  which  it  contained — 
first  and  gravest  of  all,  that  of  creating  an  organic  system 
of  pluraHty  of  banks  of  issue,  which,  as  we  shall  see, 
was  to  prove  harmful  to  Italy — we  must  nevertheless 
acknowledge  that  the  law  of  April  30,  1874  was  at  that 
time  of  undeniable  service,  in  view  of  the  very  serious 
condition  of  the  country,  to  which  it  brought  some  relief 
It  laid  the  foundations  of  the  ItaHan  banking  system 
which,  being  modified  successively  according  to  the 
needs  growing  out  of  changing  conditions,  may  be  con- 
sidered in  substance  the  one  which  still  survives  to-day, 
in  so   far    as    it    defined    the    rules    for    the    limitation 


The      Banks      of     Issue      in      Italy 

of  the  circulation,  fixing  it  at  three  times  the  paid-up 
capital  of  the  banks  having  the  form  of  joint  stock 
companies  or  of  the  free  capital  possessed  by  the  two 
banks  of  Naples  and  Sicily,  on  condition  that  a  similar 
ratio  should  be  maintained  between  the  notes  in  cir- 
culation and  the  metallic  reserve;  it  forbade  all  issue 
of  notes  by  other  institutions,  and  stipulated  that  all 
those  which  had  notes  in  circulation  should  withdraw 
them  by  December  31,  1874;  it  established  the  tax  on  the 
circulation  of  bank  notes  at  the  rate  of  i  per  cent,  deduct- 
ing that  covered  by  metaUic  reserve;  it  removed  the 
state  guaranty  for  the  circulation  of  the  notes  of  the 
Banca  Romana,  which  had  been  given  by  the  Papal  Gov- 
ernment, and  obHged  the  bank  to  redeem  its  own  notes; 
it  arranged  for  the  extraordinary  increase  of  circulation 
in  moments  of  urgent  need,  settling  that  this  should  not 
be  resorted  to  until  after  the  discount  rate  had  been 
increased,  and  could  not  exceed  40  per  cent  of  the  paid- 
up  capital  and  free  capital  of  the  banks  of  issue,  and 
was  not  to  continue  for  a  period  of  more  than  three 
months,  while  the  profits  of  the  greater  circulation  were 
to  accrue  entirely  to  the  State. 

A  provision  of  the  law  that  was  exceedingly  severe,  and 
in  practice  never  observed,  stipulated  that  any  banks  of 
issue  keeping  in  circulation  bills  or  other  equivalent  certifi- 
cates payable  to  bearer,  beyond  the  sum  authorized  by 
the  law,  or  assuming  other  obHgations  payable  at  sight 
or  on  simple  demand,  without  maintaining  the  prescribed 
ratio  to  the  metallic  reserve,  should  be  obHged  to  pay  the 
State  a  fine  for  a  sum  equal  to  the  excess  of  circulation 
or  liabilities  or  the  deficiency  of  the  metallic  reserve. 


33 


National    Monetary     Commission 

Another  exceedingly  severe  provision  of  the  law,  hence 
never  enforced,  took  away  legal  currency  from  the  notes 
of  the  banks  which  had  not  satisfied  the  requirement 
to  redeem  their  notes  in  the  notes  of  the  association  or 
in  metallic  money. 

An  article  of  the  same  law  provided  further  for  the 
mutual  redemption  of  notes  among  the  banks  of  issue  in 
conformity  with  rules  to  be  estabUshed  by  royal  decree. 
It  will  be  seen  in  due  course  how  this  requirement  of 
redemption  gave  rise  to  bitter  and  violent  discussions,  and 
how  the  Government  ended  by  aboUshing  it. 

The  same  law  estabUshed  the  amount  of  the  capital 
and  free  capital  of  the  banks  of  issue  which  should  serve 
as  a  basis,  together  with  the  respective  metallic  reserve, 
for  the  issue  of  bank  notes;  it  provided  for  establish- 
ing in  detail  the  government  inspection  of  banks  by  a 
regulation  to  be  ratified  by  royal  decree;  and  so  great 
was  the  faith  that  the  adjustment  made  by  this  law 
would  completely  cure  the  ills  of  the  country's  currency, 
that  it  ordered  the  Government  to  present  within  six 
months  of  its  promulgation  a  report  on  the  paper  cir- 
culation, with  the  proper  provisions  for  bringing  about 
the  abolition  of  forced  currency. 

Such  confidence  could  not  fail  to  seem  excessive  if 
we  consider  that,  as  we  have  already  seen,  the  State 
alone  had  a  circulation  of  860,000,000  lire,  which  it  was 
proposing  to  raise  to  1,000,000,000  lire.  This  circulation, 
of  which  the  part  already  issued  and  still  to  be  issued  by 
the  Banca  Nazionale  nel  Regno  amounted  to  890,000,000 
lire,  was,  according  to  the  law  of  1874,  to  be  replaced  by 


M 


The      Banks      of     Issue      in      Italy 

bank  notes  issued  by  the  six  banks  organized  into  a 
association. 

The  notes  that  the  association  was  to  furnish  the  State, 
up  to  a  maximum  total  of  1,000,000,000  Hre,  of  which 
890,000,000  Hre  were  to  be  furnished  within  the  first  year, 
were  to  be  issued  at  the  charge  of  the  banks  themselves 
in  proportion  to  their  respective  paid  up  capital  or  free 
capital ;  but  in  order  to  give  immediate  effect  to  the  law 
it  was  stipulated  that  the  notes  of  the  Banca  Nazionale 
of  the  denominations  of  i,  2,  5,  10,  20,  250,  and  1,000 
lire  should  be  declared  provisionally  association  notes, 
— higlietti  consorziali  provisori — while  those  of  denomi- 
nations of  25,  40,  50,  100,  and  500  were  to  remain  in  cir- 
culation on  account  of  the  bank  itself.  With  the  notes 
of  the  association  the  State  reimbursed  the  Banca  Na- 
zionale for  its  credit,  which  had  amounted  to  860,000,000, 
lire,  to  which  was  added  an  additional  30,000,000  lire 
provided  for  by  the  laws  of  December  21  and  24,  1873. 

Thus  ended  this  period  of  relationship  between  the 
State  and  the  Banca  Nazionale,  which,  as  we  have  seen 
above,  had  excited  so  many  polemics,  and  the  principle 
of  the  plurality  of  the  banks  of  issue  was  reenforced, 
and  extended  also  to  the  banks  of  Naples  and  Sicily 
in  a  more  explicit  and  organic  way.  Until  then  these 
had  been  considered  institutions  of  a  special  kind,  author- 
ized to  issue  fiduciary  certificates  different  from  bank 
notes,  but  once  granting  the  continuance  of  the  plurality 
of  banks,  they  could  no  longer  be  excluded  from  the 
privilege  of  issue. 

The  effects  of  the  new  law  on  the  currency  could  not, 
however,  be  realized  in  this  same  year  of  1874,  because 


35 


National    Monetary     Commission 

in  Italy  and  abroad  the  crisis  which  had  broken  out  the 
year  before  still  lasted  and  its  final  liquidation  went  on 
until  1876. 

In  the  year  1875,  however,  the  first  good  effects  of  the 
banking  law  began  to  be  felt,  effects  due,  moreover,  to 
external  causes  also  which  must  be  taken  into  account 
and  deserve  some  slight  mention,  inasmuch  as  they  show, 
in  no  doubtful  way,  that  the  conditions  of  the  circulation 
and  credit  and  in  general  of  the  public  economy 
can  not  always  be  regarded  as  independent  and 
separate  from  those  of  the  finances  of  the  State. 
Examples  may  be  given  of  their  absolute  independence  of 
each  other,  in  that  there  are  cases  of  countries  financially 
rich  and  economically  poor,  since,  while  the  people  work, 
produce,  earn,  and  save,  governments  with  an  anti- 
economical  and  spendthrift  policy  scatter  the  pubHc 
money  and  ruin  the  State  finances ;  such  examples  can  not 
be  shown,  however,  except  from  special  causes  of  a  transi- 
tory nature.  Consequently,  there  is  no  example  of  a 
country  permanently  in  a  state  of  economic  inferiority 
and  financial  prosperity,  because  the  latter  can  not  become 
soHd  if  it  is  not  based  on  economic  prosperity;  Hkewise 
there  is  no  example  of  a  country  with  State  finances  perma- 
nently disorganized  and  in  normal  economic  and  mone- 
tary conditions,  because  the  State,  in  order  to  provide  for 
the  financial  embarrassments,  will  have  recourse  to  issues 
of  obligations  or  its  own  notes,  or  bank  notes  with  forced 
currency,  and  will  oppress  the  public  economy  with 
excessive  taxes  which  will  dry  up  the  sources  of  national 
activity. 


The      Banks      of     Issue      in      Italy 

In  general,  a  very  close  connection  may  be  seen  between 
the  conditions  of  the  State  finance  and  those  of  the  public 
economy,  a  connection  which  makes  each  feel,  from  time 
to  time,  the  effects  of  events  either  forttmate  or  unfortu- 
nate, to  which  both  may  be  subject. 

Let  us  add  that  sometimes  the  economic  conditions  of 
a  country  may  be  harmed  by  external  causes  also,  espe- 
cially if  it  is  a  question  of  a  debtor  country,  which,  in 
order  to  provide  for  the  financial  needs  of  the  State  or 
those  of  its  own  economy,  has  asked  and  obtained  the 
help  of  foreign  capital;  since  it  is  enough  in  such  a  case 
for  the  foreign  market  to  be  disturbed,  to  cause  the  State 
securities  or  banking  and  industrial  securities  to  be  sent 
back  with  a  violent  movement  to  the  debtor  country, 
which  must  pay  for  them  in  ready  money.  Instinc- 
tively, creditor  countries,  in  moments  of  financial  crisis  or 
monetary  stringency,  dispose  of  the  foreign  securities 
that  they  can  normally  sell  at  prices  higher  than  those 
at  which  they  have  bought  them,  and  which  they  will 
then  be  able  to  get  back  at  prices  lower  than  the  ones 
at  which  they  sell  them,  because  their  privileged  position 
puts  them  in  the  way  of  choosing  the  right  time  to  buy 
and  the  right  time  to  sell.  On  the  broad  green  cloth  of 
the  international  market  creditor  countries  are  the  play- 
ers who  play  most  frequently  with  marked  cards. 

It  comes  about  for  this  reason  that  while  creditor 
countries  escape  with  the  rapid  sale  of  foreign  securities 
functioning  as  ballast,  which  permits  the  market  to  re- 
main up,  debtor  countries,  which  are  necessarily  desti- 
tute even  in  normal  times  of  the  available  cash  needed 


37 


National    Monetary     Commission 

for  the  regular  progressive  development  of  their  own 
activity,  find  themselves,  instead,  exposed  to  suffer  more 
rudely  the  effects  of  the  disturbances  of  the  financial 
markets,  even  when  the  countries  themselves  have  noth- 
ing to  do  with  the  causes  which  have  provoked  them. 
In  such  cases  it  is  of  no  avail  for  a  country  to  have  a 
circulation  that  is  sound  because  it  represents  true  and 
valid  commercial  transactions,  surely  payable  at  matu- 
rity, and  adjusted  to  the  internal  needs  of  the  country — 
since  the  abrupt  return  from  abroad  of  a  considerable 
quantity  of  national  securities,  suddenly  altering  the  ratio 
of  debit  and  credit  of  the  country,  disturbs  its  monetary 
tranquillity  and  makes  exchange  rise  rapidly. 

But  even  without  the  mediation  of  violent  causes,  such 
as  the  breaking  out  of  a  crisis,  the  monetary  economy  of  a 
country  may  likewise  be  disturbed  by  the  bad  conditions 
of  the  State  finance,  since  the  decline  and  retiu-n  of  the 
securities  of  a  country  may  be  due  also  to  discovering  a 
big  deficit  for  which  it  is  not  easy  to  provide. 

Italy,  which  was  for  many  years  a  debtor  country  for 
enormous  sums,  to  the  extent  of  having  abroad  as  much  as 
some  6,000,000,000  lire  in  State  and  private  securities,  was 
obliged  many  times  to  experience  the  effects  of  this  con- 
dition of  inferiority  of  debtor  countries,  which  find  them- 
selves without  weapons  in  the  monetary  contests  fought 
in  the  international  market.  And  while  they  remain 
almost  isolated  and  excluded  from  the  normal  movement 
of  the  international  money  cinrents,  because  foreign 
capital  can  not  be  attracted  to  them  without  the  induce- 
ment of  higher  remuneration,  owing  to  the  frequent 
fluctuations  of  exchange,  which  make  capitalists  insecure 


The      Banks      of     Issue      in      Italy 

and  timid,  debtor  countries  are  in  addition  exposed  to 
suffer  more  harshly  the  consequences  and  reflex  action 
of  disturbances  which  come  into  the  international  market 
for  any  reason,  whether  political,  economical,  monetary,  or 
speculative.  It  may  be  said,  therefore,  that  debtor 
countries  with  impaired  finances  and  circulation  are, 
in  their  relations  with  creditor  countries,  isolated  in  good 
and  associated  in  evil. 

These  things  are  mentioned  here  not  as  a  theoretic 
summing  up  of  the  reciprocal  relations  that  inevitably 
intervene  between  the  conditions  of  the  State  finance  and 
those  of  the  economy  of  a  country,  but  as  an  explanation 
of  the  monetary  disasters  of  Italy,  which  were  not  all  exclu- 
sively dependent  upon  the  conditions  of  the  paper  currency 
and  the  situation  of  the  banks  of  issue. 

So,  for  example,  the  increase  of  exchange  mentioned 
above,  from  no,  the  highest  point  reached  in  1872,  to 
115.55,  the  highest  point  reached  in  1873,  was  not  due  to 
any  increase  in  the  evils  of  the  ItaHan  currency,  but,  as 
we  have  already  said,  to  the  crisis  which  broke  out  in 
Austria,  and  reacted  on  other  countries  on  both  sides  of 
the  Atlantic;  and  it  was  also  due  to  the  conditions  of  the 
financial  balance  sheet  of  the  State,  in  which  the  deficit, 
which  had  fallen  from  214,000,000  lire  in  1870  to  47,000,000 
lire  in  187 1 ,  had  risen  again  to  83,000,000  lire  in  1872  and  to 
89,000,000  lire  in  1873.  In  direct  ratio  with  the  advance 
in  exchange  stood  the  decline  of  Italian  rentes  on  the 
Paris  market,  which  went  down,  in  1873,  ^^om  a  maximum 
quotation  of  68.40  to  a  minimum  of  58.10,  and  in  1874 
from  a  maximum  of  68  to  a  minimum  of  58.90. 


39 


National     Monetary     Commission 

But  the  beneficial  effect  of  the  new  law  on  the  paper 
currency  which  was  visible,  as  we  have  said,  in  1875,  was 
due  to  the  better  condition  of  the  international  market 
which  was  still  engaged  in  the  liquidation  of  the  crisis, 
already  for  the  most  part  completed,  and  also  to  the 
improved  conditions  of  Italian  finance.  Italian  rentes 
fluctuated  in  1875  between  the  minimum  quotation  of 
66.10  and  the  maximum  of  74;  exchange  varied  between 
the  minimum  rate  of  105  and  the  maximum  of  109.30, 
while  for  the  first  time  there  appeared  a  surplus  in  the 
budget  for  the  sum  of  14,000,000  lire. 

Conditions  remained  stationary,  until,  in  1877,  a  new 
decline  in  Italian  rentes  in  Paris  (which  fell  from  73.20 
to  62.15)  provoked  a  new  rise  in  exchange  to  113. 

The  following  period  from  the  point  of  view  of  the 
functioning  of  the  system  of  the  paper  currency,  does 
not  present  details  worthy  of  special  mention.  Although 
signs  were  already  discernible  of  a  rivalry  between  the 
various  banks  of  issue  which  was  later  to  have  disastrous 
effects,  yet  they  were  acting  in  relative,  or  at  least  appar- 
ent, harmony,  and  their  action  did  not  exceed  the  normal 
needs  of  the  country,  which  was  gradually  developing  its 
economic  activities.  But  an  important  poHtical  event, 
the  fall  from  power  of  the  party  of  the  Right  which  had 
remained  in  for  a  long  time,  and  the  advent  to  the  Gov- 
ernment of  the  party  of  the  Left,  was  to  have,  even  in  the 
matter  of  the  currency,  noteworthy  results. 

The  party  of  the  Left  had  come  into  power  with  youthful 
impetuosity,  bringing  with  it  a  large  baggage  of  financial 
and  economic  reforms;  it  had  come  filled  with  the  im- 
patience of  the  fighting  spirit,  as  if  it  believed  it  had  a 


40 


The     Banks      of     Issue      in      Italy 

great  mission  to  accomplish.  The  principal  ideas  of  the 
economic-financial  reform  programme  were  the  abolition 
of  the  grist  tax  and  the  abolition  of  forced  currency. 
In  order  to  win  an  enthusiastic  reception  for  these  two 
important  parts  of  the  programme  of  the  Left,  sensational 
phrases  were  found  calculated  to  excite  and  captivate  the 
minds  of  the  crowd;  phrases  such  as  political  parties 
never  lack.  And  it  was  said  the  "grist  tax  is  a  starva- 
tion tax,"  and  "forced  currency  is  a  dishonor." 

As  for  the  first,  the  seal  put  upon  it  might  have  seemed 
suitable  to  define  it  exactly  if,  almost  immediately  upon 
the  abolition  of  the  grist  tax  which  brought  into  the 
State  coffers  about  45,000,000  lire  a  year,  there  had  not 
been  imposed  a  duty  on  the  importation  of  grain,  as 
high  as  7.50  lire  a  hundred  kilograms,  which  put  from 
150,000,000  to  160,000,000  lire  and  even  more  a  year  in 
the  pockets  of  the  producers  of  grain,  without,  of  course, 
benefiting  in  the  least  the  people  in  general.  On  the 
contrary,  it  may  be  said  that  the  abolition  of  the  grist 
tax  was  the  signal  for  an  increase  in  the  price  of  bread. 

But  it  is  not  easy  to  make  out  why  forced  currency 
should  be  considered  a  dishonor.  Forced  currency  is  the 
condition  of  monetary  inferiority  of  a  country,  which  may 
be,  as  was  precisely  the  case  with  Italy,  the  result  of 
the  immense  expenses  incurred  in  the  long-drawn-out 
struggle  for  the  political  unification  of  the  Kingdom,  and 
for  the  urgent  and  serious  needs  growing  out  of  its  uni- 
fication. Forced  currency  may  also  be  the  result  of 
financial  and  economic  errors;  in  any  case  it  indicates 
a  state  of  affairs  that  is  prejudicial,  but  not  dishonorable 
for  a  country,  unless  it  has  grown  from  immoral  and 


41 


National     Monetary     Commission 

criminal  causes;  and  since  it  is  a  prejudicial  state,  it  is 
fitting  to  consider  the  ways  and  means  best  suited  to 
bring  it  to  an  end. 

However  that  may  be,  inasmuch  as  the  Left  had  come 
into  power,  it  was  its  desire  and  duty  to  solve  these  two 
questions;  and  while  Signor  Seismith  Doda,  minister  of 
finance,  was  engaged  upon  the  question  of  the  grist  tax, 
and  got  the  bill  passed  by  the  Chamber  in  the  midst  of 
the  raging  of  the  most  violent  polemics  and  the  deter- 
mined opposition  of  the  Senate,  on  the  other  hand  Signor 
Agostino  Magliani,  minister  of  finance,  was  later  to  take 
up  the  question  of  forced  currency. 


42 


Chapter  III. 

THE    ABOLITION    OF    FORCED    CURRENCY    AND    ITS   EFFECTS. 

It  seemed  to  the  Left  on  coming  into  power  that  in 
abolishing  the  forced  currency  of  bank  notes  it  would  win 
a  fight  which  would  raise  it  to  a  great  height  in  comparison 
with  the  party  of  the  Right,  which,  although  it  had 
expressed  at  various  times  the  intention  of  providing  for 
the  abolition  of  forced  currency — an  intention  that  Marco 
Minghetti  had  promised  by  an  article  of  the  law  of  April 
30,  1874,  to  carry  out  by  presenting  a  bill  to  that  effect 
within  six  months  from  the  promulgation  of  the  law 
itself — had,  none  the  less,  failed  to  succeed  in  doing  it. 

In  spite  of  all  the  bitter  and  not  entirely  unjustified 
criticisms  heaped  upon  the  long  financial  work  of  Agostino 
Magliani,  an  impartial  historian  can  not  fail  to  recognize 
that  he  was  a  man  of  profound  learning,  of  marvelous 
ingenuity,  of  subtle  mastery  of  technique,  with  a  broad 
knowledge  of  the  problems  that  bear  upon  State  finance 
and  public  economy;  being  rich  in  resources  and  expedi- 
ents, he  was  able  at  times  to  extricate  himself  with  great 
ease  and  simplicity  from  involved  and  difficult  situations ; 
and  he  was,  above  all,  of  exemplary  uprightness;  the  last 
quality  the  other  ministers  of  Italian  finance  possessed  in 
common  with  him. 

Agostino  Magliani,  who  was  minister  of  finance  for 
ten  years  and  took  part  in  very  important  financial 
operations,  died  poor. 

It  is  not  probable  that  Agostino  Magliani  failed  to  con- 
sider, in  the  intimacy  of  his  conscience,  certain  of  the 

43 


National    Monetary     Commission 

objections  and  reservations  which  had  been  made,  in 
lively  forms  too,  by  his  adversaries.  But  he  was  now  in 
the  service  of  the  party  which  desired  the  great  victory  of 
the  abolition  of  forced  currency;  and  since  he  was  not  as 
energetic  and  resolute  as  he  was  talented,  he  was  unable 
to  resist  and  allowed  himself  to  be  drawn  along  by  the 
current;  which  signifies  that  in  this  matter  of  forced 
currency,  as  in  other  things  for  which  he  was  reproached, 
even  by  his  friends,  in  virtue  of  that  right  to  ingratitude 
of  which  those  persons  especially  avail  themselves  who 
wish  to  make  others  solely  responsible  for  errors  that  have 
been  planned  and  committed  together,  Agostino  Magliani 
must  be  considered  in  great  part  as  the  executor  of  a  col- 
lective will  that  was  imposed  upon  him.  If  he  had 
obeyed  the  dictates  of  his  knowledge  and  conscience  and 
given  up  ofhce,  as  he  had  often  expressed  the  intention 
of  doing,  in  order  not  to  lend  himself  to  carrying  out  that 
financial  policy  which  distinguished  the  first  period  of 
the  advent  to  power  of  the  Left,  a  financial  policy  which 
was  called  optimistic  and  thoughtless,  he  would,  by  aban- 
doning his  post  have  saved  his  reputation  but  would  not 
have  helped  finance,  whose  optimism  and  thoughtlessness 
would  not  have  ceased  on  that  account,  but  would, 
instead,  have  increased.  For  Agostino  Magliani  raised 
more  than  once  a  voice  of  severe  admonition  and  refused 
to  carry  out  the  other  parts  of  the  financial  programme 
which  the  party,  to  use  the  time-honored  phrase,  had  in- 
scribed on  the  folds  of  its  banner. 

However,  the  prevailing  idea  that  forced  currency  must 
be  abolished  by  a  summary  proceeding,  by  a  law  which 
declared  its  downfall,  showed  clearly  how  superficially  this 


44 


The     Banks     of     Issue     in      Italy 

grave  problem  had  been  examined.  Nevertheless,  the 
plan  that  Magliani  evolved  bears  witness  to  his  great  talent 
and  puts  in  evidence  the  prevailing  benevolence  of  his 
mind,  naturally  inclined  to  see  and  foresee  the  good;  for 
Agostino  Magliani  was  above  all  a  great  optimist. 

Considering  that  the  forced  currency  of  bank  notes  had 
been  decreed  and  imposed  for  State  reasons,  in  order  to 
keep  coactively  in  circulation,  and  make  accepted  the 
notes  of  the  State,  Magliani  proposed  to  redeem  these 
notes  with  the  proceeds  of  a  loan  to  be  made  in  gold  for  a 
sum  of  only  644,000,000  lire,  44,000,000  of  which  were  to 
serve  to  reimburse  the  loan  in  gold  made  by  the  Banca 
Nazionale  to  the  Government  to  buy  over  the  tobacco 
monopoly. 

Since  940,000,000  lire  of  notes  were  then  circulating 
under  forced  currency  and  to  the  debit  of  the  State,  there 
would  remain,  not  redeemed  in  gold,  340,000,000  lire,  which 
Magliani  judged  could  be  left  in  circulation  without  dis- 
turbing the  mass  of  notes,  especially  because  they  would 
be  divided  into  notes  of  small  denominations  of  5  and  10 
lire,  and  would  be  declared  convertible  into  metallic  money 
on  demand,  then  cancelled  annually  by  means  of  the 
surplus  of  the  budget,  on  which  he  thought  he  could  surely 
count;  while,  in  the  meantime,  a  corresponding  sum  in 
certificates  of  government  rentes  deposited  in  the  Cassa 
dei  Depositi  e  Prestiti  was  set  aside  to  guarantee  the  State 
notes. 

These  promises  and  guaranties  caused  the  proposal  for 
the  creation  of  true  and  proper  State  notes,  to  be  favora- 
bly received,  though  not  without  difficulty  and  opposition, 
the  provision  being  considered  of  a  transitory  character, 


45 


National    Monetary     Commission 

which  was  to  make  less  arduous  the  greatly  desired  aboli- 
tion of  the  forced  currency  of  notes. 

Naturally,  the  loan  involved  a  greater  annual  expense 
of  about  36,500,000,  because,  in  order  to  obtain  the  sum 
of  644,000,000  lire,  it  was  necessary  to  sell,  at  the  price  of 
88,  5%,  Italian  rentes  for  a  nominal  value  of  729,745,000 
lire,  bearing  36,487,250  lire  interest.  Minister  Magliani 
had  to  show,  therefore,  that  the  greater  expense  would  be 
partially  offset  by  the  fact  that  the  abolition  of  forced 
currency  would  diminish  the  burdens  of  the  Italian 
treasury  in  the  payments  it  had  to  make  abroad.  He 
was  obliged,  moreover,  to  propose  other  resolutions,  the 
most  important  of  which  consisted  in  a  modification  of 
the  system  of  pensions  to  the  employees  of  the  State,  by 
means  of  creating  a  department  independent  of  the  treas- 
ury ;  a  change  by  which  Maghani  coimted  on  saving  about 
19,000,000  lire  a  year.  This  design,  however,  was  not  car- 
ried into  effect. 

But  without  going  into  particulars  of  minor  importance, 
it  may  be  stated  that  the  foundation  on  which  rested  the 
whole  structure  of  the  bill  for  the  abolition  of  forced  cur- 
rency was  represented  by  the  optimism  of  Magliani,  by 
the  strong  and  sure  faith  that  he  had  in  the  progressive 
increase  of  the  returns,  and  in  the  firm  establishment  and 
further  increase  of  the  surplus  of  the  budget.  The  opinion 
was  clearly  fixed  in  his  mind  that  the  very  abolition  of 
forced  currency,  by  stimulating  still  further  the  activity 
of  the  country,  would  help  the  national  economy,  and 
through  direct  and  indirect  ways  compensate  the  budget 
for  the  burden  which  it  was  apparently  about  to  assume 
by  the  issue  of  the  new  loan.     And  as  it  always  happens 


46 


The     Banks     of     Issue     in     Italy 

when  profitable  and  agreeable  things  are  announced,  he 
succeeded  in  communicating  his  conviction  and  his  opti- 
mism to  the  great  majority  of  the  members  of  Parliament, 
who  passed  the  bill  with  enthusiasm. 

To  justify  the  roseate  forecasts  of  Magliani  it  may  be 
well  to  say  that  the  budget  had  closed  for  the  fiscal  year 
1879  with  a  surplus  of  42,000,000  lire  in  the  ordinary  part, 
a  surplus  which  had  gone  down  in  1880  to  27,000,000,  and 
that  all  the  signs  of  the  economic  and  industrial  move- 
ment of  the  country  pointed  to  a  betterment  which  jus- 
tified the  faith  in  further  progress.  The  situation  of 
the  banks  of  issue  at  the  end  of  1879  was  as  follows: 

[Amounts  expressed  in  millions  of  lire.] 


December  31,  1879. 


Banca  Nazionale  nel  Regno 
Banca  Nazionale  Toscana  .  . 
Banca  Toscana  di  Credito  .  . 

Banca  Romana 

Banco  di  Napoli 

Banco  di  Sicilia 

Total 


Capi- 
tal. 


200.  o 
30.  o 
10.  o 

150 

43-  I 
10.  o 


308. 


Notes  in 
circu- 
lation. 


441.  I 
59-  2 
14-  o 
43    5 

144.8 
29.7 


732.4 


Demand 
liabili- 
ties. 


Depos- 
its. 


.  I 

2.  2 

73.9 

23.4 


68.4 

2.  o 

•  3 

9-7 

16.8 


97.2 


Dis- 
counts. 


204.  I 
33-4 
6.6 
37.  I 
76.8 
23 -3 


381.3 


Loans. 


55-6 
I.  I 
4   9 

4.7 

56. o 

7.8 


130.  2 


Metallic  reserve. 


Banca  Nazionale  nel  Regno 
Banca  Nazionale  Toscana  .  . 
Banca  Toscana  di  Credito  . 

Banca  Romana 

Banco  di  Napoli 

Banco  di  Sicilia 

Total 


For  bank  notes. 


Amount. 


54.8 
19.7 
6.4 
16.3 
75.  2 
10.  4 


282.8 


Per 
cent, 


38 


For  demand  lia- 
bilities. 


7.0 
.06 

•  03 

•  7 
24.  6 

7.8 


40.  2 


Per 
cent 


Grand  total. 


Amount. 


161. 8 
19.8 
6.4 
17.0 
99  8 
18.2 


323.0 


Per  cent 
of  bank 
notes. 


39781' 


47 


National    Monetary     Commission 

The  loan  of  644,000,000  lire  was  taken  up  by  an  Anglo- 
French- Italian  Syndicate,  under  the  direction  of  the 
Banca  Nazionale  nel  Regno,  which,  in  agreement  with 
Signor  Magliani,  w^as  to  overcome  rapidly  grave  difficulties 
subsequent  upon  the  Tunis  question,  which  made  the 
French  market  less  inclined  to  share  openly  in  a  great 
Italian  financial  operation.  The  loan  was  fully  successful, 
principally  because  of  the  enthusiasm  of  the  English 
market,  to  which  it  was  presented  under  the  auspices  of 
the  two  great  banking  houses,  Hambro  &  Co.  and  Baring 
Brothers. 

Of  the  proceeds  of  the  loan,  44,000,000  Hre  in  gold  were 
used  to  pay  back  the  loan  made  by  the  Banca  Nazionale 
for  the  government  tobacco  monopoly;  1 16,000,000  lire  in 
foreign  payments  on  account  of  the  treasury.  The  re- 
maining 484,000,000  lire,  of  which  398,000,000  lire  was  in 
gold  and  86,000,000  in  silver  were  deposited  in  the  coffers  of 
the  treasury,  which  substituted  for  the  sum  of  1 16,000,000 
lire  paid  abroad  on  its  account  an  equal  amount  of  gold 
received  in  payment  of  customs  duties.  On  May  10,  1883, 
the  Itahan  treasury  possessed  728,000,000  lire  in  gold. 

The  law  of  April  7,  1 881,  for  the  abolition  of  forced  cur- 
rency, dissolved  from  June  30  of  the  same  year  the  asso- 
ciation of  the  banks  of  issue,  and  declared  that  from 
that  date  the  notes  issued  by  it  on  account  of  the  State 
should  be  constituted  a  direct  debit  to  the  latter;  and  it 
arranged  for  the  calling  in  of  State  rentes  which,  having 
been  given  first  as  guaranty  for  the  loans  made  by  the 
Banca  Nazionale,  had  been  transferred  later  to  guarantee 
the  notes  of  the  association,  substituted  for  those  of  the 
bank  itself. 


48 


The     Banks     of     Issue     in     Italy 

The  association  notes,  which  had  passed  over  entirely 
to  the  debit  of  the  State,  were  declared  legal  tender  in  the 
whole  Kingdom,  but  reimbursable  on  demand  in  coin. 
The  notes  of  the  Banca  Nazionale,  declared  temporarily 
association  notes,  were  to  be  changed,  within  five  years, 
into  definitive  association  notes  at  legal  currency;  after 
this  time  they  should  be  lapsed  in  favor  of  the  State. 
Thus  also  the  notes  of  5  and  10  lire,  issued  by  the  associa- 
tion, should  be  changed  into  State  notes  of  the  same 
denominations.  The  State  was  to  deposit  at  the  Cassa 
dei  Depositi  e  Prestiti  certificates  of  rentes  for  the  sum, 
at  nominal  value,  of  340,000,000  lire,  as  a  guaranty  for 
a  like  sum  of  State  notes.  As  we  have  already  seen,  the 
law  stipulated  that  the  total  of  the  State  notes  should 
be  diminished  by  the  surplus  of  the  budget  available  for 
the  sinking  fund  of  treasury  debts,  against  the  withdrawal 
and  canceling  of  a  corresponding  amount  of  the  rentes 
deposited  as  guaranty. 

The  law  disposed  that  from  the  date  on  which  was 
begun  the  redemption  of  the  association  notes  in  metallic 
money  the  customs  duties  on  imports  should  be  paid  in 
the  said  notes  or  in  metallic  money,  excluding  frac- 
tional money  beyond  100  fire  for  every  payment.  The 
legal  currency  of  the  notes  of  the  banks  of  issue  was  con- 
tinued for  the  whole  of  1883,  and,  at  the  same  time, 
it  was  arranged  that  the  Government  should  have  the 
option  to  receive  these  notes  in  the  public  coffers  even 
after  they  had  ceased  to  have  legal  currency.  The  metal- 
lic reserve  for  the  guaranty  of  the  notes  of  the  banks  of 
issue  was  to  be  composed  exclusively  of  metallic  coin 
having  legal  currency  in  the  Kingdom,  and  the  Govern- 


49 


National    Monetary     Commission 

tnent  undertook  the  task  of  keeping  watch  to  prevent  the 
gold  reserves  of  the  banks  from  being  disposed  of  or  con- 
verted into  silver. 

The  Government  reserved  the  right  to  establish  the 
rules  for  the  mutual  redemption  of  the  notes  between  the 
banks  of  issue  and  between  these  and  the  treasury  dur- 
ing the  legal  currency  and  to  provide  for  the  estab- 
lishment of  clearing  houses  in  the  principal  cities. 

The  same  law  organized  a  commission  charged  with  the 
supervision  of  the  abolition  of  forced  currency,  pre- 
sided over  by  the  minister  of  the  treasury,  and  composed 
of  four  senators,  four  deputies,  and  four  State  officials,  des- 
ignated by  the  ministerial  council.  The  commission  was 
to  inquire  into  the  precautions  necessary  to  the  putting 
into  effect  of  the  law  for  the  aboHtion  of  forced  currency 
and  had  the  duty  of  watching  the  progress  of  the  result- 
ing operations,  which  they  were  to  describe  annually  in 
a  report  to  be  presented  to  Parliament. 

The  presentation  of  the  bill  for  the  abolition  of  forced 
currency,  made  in  November,  1880,  produced  an  extraor- 
dinary effect.  Exchange,  which  had  remained  at  the 
beginning  of  the  year  in  the  neighborhood  of  112,  and 
was  still  in  the  month  of  October  not  much  below  no, 
fell  in  November  to  a  minimum  course  of  101.62. 

This  rapid  fall  of  exchange  showed  what  had  already 
been  proved  in  Italy,  and,  for  that  matter,  in  all  countries 
with  a  depreciated  paper  circulation;  that  is  to  say, 
exchange  is  not  only  the  natural,  exact  measure  of  the 
loss  of  paper  money  as  compared  to  metallic  money,  but 
it  is  besides  an  article  of  speculation,  as  may  be  seen 


50 


The     Banks     of     Issue     in      Italy 

clearly  by  the  frequent  and  sometimes  convulsive  fluc- 
tuations it  undergoes,  which  constitute  a  very  great 
injury  for  a  country  with  an  abnormal  circulation;  since 
the  frequent  variation  of  the  rate  of  exchange  does 
more  harm  than  if  exchange  remained  permanently  at  a 
still  higher  level,  because  it  furnishes  an  element  of 
continual  uncertainty  which  injures  international  com- 
mercial relations  seriously  and  drives  away  from  the 
country  such  foreign  capital  as  it  may  need. 

Speculators  in  Italy  had  organized  their  game  on  a 
basis  which  assured  its  full  success.  They  knew  the 
moments  when  the  Italian  Treasury  needed  to  make 
foreign  payments  in  metallic  money,  especially  the  pay- 
ment of  the  interest  on  the  public  debt,  and  knew  approx- 
imately its  amount,  just  as  they  knew,  very  nearly,  the 
sums  needed  in  gold  for  payments  of  other  kinds  and  for 
interest  on  other  Italian  securities  owned  abroad.  There- 
fore, as  the  time  approached  when  the  treasury  and  the 
institutions  and  companies  or  business  firms  were  to  pro- 
ceed to  buy  up  exchange,  speculators  artificially  advanced 
its  price,  in  order  to  sell  exchange  more  dearly  to  those 
who  wanted  it.  Moreover,  speculators  bought  up  whole- 
sale at  home  coupons  of  government  rentes  which  they 
sent  abroad  in  order  to  receive  payment  in  gold  for  them. 
Against  this  second  injurious  expedient  the  Italian 
Treasury  succeeded  at  last  in  partially  defending  itself, 
when  in  1893  it  established  the  affidavit — that  is  to  say, 
the  obligation  of  presenting  the  coupons  of  government 
rentes  with  the  sworn  declaration  that  they  were  in  actual 
fact  owned  abroad — a  legitimate  and  honest  provision 


51 


National    Monetary     Commission 

which,  though  bitterly  criticised  on  its  presentation, 
succeeded  admirably  none  the  less  and  was  later  imitated 
by  other  countries. 

And  the  treasury  succeeded  also,  though  no  less  tardily, 
in  defending  itself  against  gambling  on  exchange,  made 
specially  to  its  detriment,  by  stipulating  that  the  pay- 
ment of  customs  duties  should  be  made  in  gold. 

The  phenomenon  manifested  at  the  moment  of  the 
presentation  of  the  bill  for  the  abolition  of  forced  currency 
was  of  an  essentially  psychological  character.  No  really 
perceptible  modification  of  a  kind  to  justify  the  decline 
of  exchange  from  no  to  101.62  had  actually  taken  place 
in  the  monetary  situation  of  Italy.  The  quantity  of 
paper  circulating  in  the  country  had  not  diminished,  and 
the  metallic  reserve  was  not  increased.  But  the  presenta- 
tion of  the  bill,  though  announced  for  a  long  time  before- 
hand, had  none  the  less  been  considered  doubtful.  When 
it  was  at  last  presented,  it  had  the  persuasive  force  of  an 
accomplished  fact,  and  gave  a  stunning  blow  to  the  specu- 
lation which  was  still  operating  on  the  course  of  exchange. 
It  not  only  obliged  those  w^ho  were  speculating  for  the  rise 
in  exchange  to  liquidate  their  obligations,  but  it  led  imme- 
diately to  speculation  for  the  fall  in  exchange,  now  sup- 
posed to  be  on  the  way  to  par.  And  in  fact,  the  favorable 
forecasts  were  far  transcended,  since  exchange  continued 
to  fall,  touching  the  minimum  rate  of  98.78  in  June,  1881, 
shortly  after  the  ratification  of  the  law  for  the  abolition 
of  forced  currency. 

This  fortunate  situation  was  destined,  however,  to  be 
rudely  disturbed  in  the  following  year  by  an  event  outside 


52 


The     Banks     of     Issue     in      Italy 

of  Italy  which  helped  to  make  more  evident  the  monetary 
precariousness  of  debtor  countries.  In  fact,  the  very 
grave  speculative  crisis  which  acutely  affected  the  Paris 
market  in  1882,  caused  to  reappear  with  greater  violence 
the  phenomenon  already  observ^ed  in  respect  to  Italy. 
Italian  rentes,  which  had  gone  up  brilliantly  in  Paris  to 
a  maximum  price  of  93.50,  as  a  result  of  the  passing  of 
the  law  abolishing  forced  currency  and  of  the  fall  of 
exchange,  fell  to  a  minimum  of  84,  while  exchange  rose 
rapidly  to  104.22. 

It  is  well  known  that  the  Parisian  crisis  was  reechoed, 
though  with  less  intensity,  in  the  other  markets,  and  that 
its  liquidation  was  long  and  tedious.  The  ItaHan  market 
also  was  greatly  disturbed  in  every  quarter,  at  a  moment 
when,  through  the  effect  produced  by  the  abolition  of 
forced  currency,  it  was  preparing  with  a  certain  eagerness 
to  give  a  more  lively  impulse  to  its  economic  activity. 
The  shares  of  the  Banca  Nazionale  went  down  from  a 
maximum  price  of  2,400  lire  to  a  minimum  of  2,073,  and 
along  with  them  all  Italian  securities  suffered  considerable 
losses. 

This  harsh  lesson  should  have  led  people  to  consider 
that  the  economic  situation  of  the  country  was  still  weak, 
and  should  have  made  prevail  in  every  department  a 
policy  of  moderation  and  concentration.  But  no  sooner 
had  the  crisis  been  liquidated  than  new  plans  of  enter- 
prises and  work  were  brought  forward  which  the  students 
of  the  economic  conditions  of  the  country  judged  exag- 
gerated and  dangerous,  especially  as  a  superficial  obser- 
vation of  the  movement  which  was  taking  shape  in  the 


53      "^ 


National     Monetary     Commission 

country  showed  that  it  was  due  in  too  great  a  degree  to 
the  work  of  speculation. 

And  while  the  State,  after  the  victory  of  the  aboli- 
tion of  forced  currency,  was  entering  upon  a  course  of 
prodigal  extravagance,  increasing  expenditures  beyond 
all  measure,  the  agricultural  crisis  broke  out,  principally 
in  the  south  of  Italy.  This  was  brought  about  for  the 
most  part  by  the  considerable  and  sudden  fall  in  the  price 
of  cereals  resulting  from  the  competition  of  other  countries, 
especially  North  America. 

The  difficult  conditions  in  which  southern  Italy  found 
itself  led  the  Bank  of  Naples  in  the  beginning  to  increase 
considerably  its  discoimt  operations,  and  consequently 
to  extend  its  own  action  even  in  other  parts  of  Italy. 
The  average  total  of  discount  operations  of  the  Bank  of 
Naples,  w^hich  had  been  25,000,000  lire  in  1883,  rose  to 
28,000,000  lire  in  1884  and  to  50,000,000  lire  in  1885;  that 
is  to  say,  it  increased  100  per  cent.  The  discoimt  opera- 
tions of  the  Banca  Nazionale  went  up  from  an  average  of 
136,000,000  lire  in  1883  ^^^  135,000,000  lire  in  1884  to 
186,000,000  lire  in  1885,  an  increase  of  37  per  cent.  The 
total  discount  operations  of  the  six  banks  of  issue  increased 
from  210,000,000  lire  in  1883  to  212,000,000  lire  in  1884 
and  to  303,000,000  hre  in  1885.  The  increase  amounted 
to  44  per  cent. 

It  was  at  this  period  that  a  lively  competition  arose 
between  the  Italian  banks  of  issue,  which  carried  them 
beyond  the  bounds  to  which  they  should  have  limited 
their  activity,  and  had  serious  consequences  for  all, 
showing  one  of  the  most  dangerous  sides  of  the  plurality 
of  banks  of  issue. 


54 


The      Banks      of     Issue      in      Italy 

Whereas  the  Bank  of  Naples,  not  having  shareholders 
to  whom  dividends  must  be  distributed,  could  give  credit 
at  rates  even  less  than  normal,  the  Banca  Nazionale  was 
influenced  by  other  reasons  of  a  special  kind  to  obtain 
a  larger  supply  of  profits  to  furnish  dividends  to  its 
shareholders.  It  has  already  been  stated  that  the  Banca 
Nazionale,  by  casting  its  lot  with  that  of  the  resurrection 
of  Italy,  had  exposed  itself  to  the  risk  of  going  under 
in  case  the  politics  and  army  of  Italy  experienced  re- 
verses; but  since  fate  smiled  on  Italy  instead,  the  Banca 
Nazionale  was  able  to  reap  a  large  profit  from  the 
faith  it  had  placed  in  the  fortune  of  the  country,  and 
from  the  bold  financial  support  it  had  eagerly  given  to 
estabHsh  it. 

And  in  fact,  whether  with  profits  derived  from  the  opera- 
tions carried  on  with  the  Government  or  with  those  re- 
ceived from  gradually  selling  off,  at  higher  prices,  the  rentes 
received  from  it,  the  bank  had  been  able  until  1881  to 
pay  dividends  of  100  lire,  and  even  more,  on  shares  paid 
up  at  750  lire.  But  the  profits  of  extraordinary  opera- 
tions either  having  ceased  or  diminished,  and  the  bank 
having  no  more  rentes  to  sell  or  to  value  in  its  balance 
sheet  at  a  higher  price,  dividends  went  down  to  89  lire  in 
1883  and  to  78  in  1884. 

Between  the  desire  to  rival  the  Bank  of  Naples,  espe- 
cially in  the  south  of  Italy,  and  that  of  not  seeming  to 
diminish  dividends,  the  business  of  the  Banca  Nazionale 
became  more  active  and  apparently  more  profitable. 


55 


National    Monetary     Commission 

The  rivalry  increased  among  all  the  banks,  whose  opera- 
tions began  to  expand  with  a  feverish  movement,  as  may 
be  seen  bv  the  following  table: 


Banks. 

Year. 

Average 

notes  in 

circulation. 

Average 
metallic 
reserve. 

Per 

cent. 

Discounts 
in  millions. 

Loans. 

Banca  Nazionale 

1883 

454 

154 

34 

1.63  s 

67 

1884 

491 

232 

47 

1.699 

78 

1885 

526+72 

213+59 

40 

2.359+724 

83+16 

Banco  di  Napoli 

1883 

142 

112 

80 

303 

80 

1884 

179 

134 

75 

342 

68 

188s 

207  +65 

137+25 

66 

597  +294 

96+16 

Banca  Nazionale  Toscana . 

1883 

52 

19 

36 

143 

^ 

1884 

62 

26 

42 

164 

a 

1885 

71+19 

32+13 

45 

265  +122 

2 

1883 

44 

19 

4^ 

117 

I 

1884 

47 

22 

47 

114 

I 

1885 

43  -    I 

16-    3 

37 

151+    34 

4+    3 

Banco  di  Sicilia 

1883 

36 

26 

72 

112 

13 

1884 

38 

31 

80 

98 

II 

188s 

42+6 

27+    I 

64 

194+    82 

II    -     I 

Banca    Toscana    di    Cre- 

dito 

1883 

14 

5 

35 

59 

043 

1884 

14 

5 

35 

44 

a  64 

i88s 

14  - 

S 

1 

35 

30-    29 

0  75  +33 

+  161 

1              +95 

1 

i 

+  1.227 

+  66 

a  Carrying  operations. 


These  figures  give  a  general  idea  of  the  very  hasty  work 
accompUshed  by  the  banks  in  the  three  years  1 883-1 885, 
especially  the  noteworthy  increase  in  discount  operations, 
which  rose  from  373,000,000  lire  at  the  end  of  1883  to 
617,000,000  lire  at  the  end  of  1885,  at  the  rate,  that  is,  of 
about  66  per  cent,  an  increase  which  became  in  the  follow- 
ing year  80  per  cent  in  comparison  with  1883,  having  in- 
creased in  1886  to  673,000,000  lire.  But  it  may  be  well 
to  pause  at  1885,  because  the  progress  of  the  banks  of 
issue,  which  was  destined,  as  we  shall  see  later,  to  follow  a 


56 


The      Banks      of     Issue     in      Italy 

dizzy  course,  was  already  beginning  to  give  some  anxiety 
and  to  make  evident  the  propriety  of  surrounding  the 
action  of  these  banks  with  greater  precautions  and  check- 
ing their  impetuosity  with  moderating  provisions.  And 
the  propriety  of  this  was  all  the  more  evident  because 
article  23  of  the  act  for  the  abolition  of  forced  currency, 
although  fixing  for  December  31,  1889,  the  termina- 
tion of  the  privilege  of  issue  granted  to  the  six  banks, 
prescribed  that  in  1882  there  should  be  presented  a  bill 
aiming  at  establishing  the  rules  by  which  the  issue  of 
bank  notes  could  be  granted  and  regulated. 

The  lawmaker,  having  provided  by  the  law  of  1881 
for  the  abolition  of  forced  currency,  saw  that  the 
regulation  of  the  circulation  of  the  notes  proper  of  the 
banks  was  defective,  and  felt  the  necessity  of  provi- 
sions suitable  to  improve  it.  Ministers  Magliani  and 
Berti  had  already  presented  in  1883  a  bill  in  accordance 
with  the  intention  mentioned  above,  accompanied  by  a 
learned  and  complete  report ;  but  the  bill  did  not  have 
the  honor  of  being  discussed,  nor  yet  the  many  other  bills 
that  followed  it,  commencing  with  the  one  presented  in 
1886,  and  suggested  by  the  desire  not  to  hinder  further 
the  reorganization  of  the  banks,  foreseen  and  promised 
by  the  law  of  1881,  as  well  as  by  the  anxiety  awakened 
in  thoughtful  people  by  the  somewhat  reckless  course 
pursued  by  the  banks  of  issue  at  that  time. 

However,  it  should  be  mentioned  in  explanation,  if  not 
in  partial  justification  of  the  failure  of  the  bills  for  bank- 
ing reorganization  that,  for  various  reasons,  the  majority 
of  the  Italian  public  never  encouraged  the  lawmaker  in 


57 


National     Monetary     Commission 

the  path  of  wise  banking  reforms.  In  the  first  place,  the 
pubUc,  especially  in  moments  of  greater  business  expan- 
sion, whether  real  or  fictitious,  commercial  or  speculative, 
never  expressed  any  other  desire  than  that  of  having 
liberally  at  its  disposal  the  greatest  possible  quantity  of 
bank  notes.  It  may  be  said  that  there  has  been  in  Italy 
no  occasion  either  of  internal  crises,  or  crises  reflected 
from  without,  of  a  nature  prevailingly  speculative,  that  it 
has  not  been  seized  upon  as  a  pretext  to  ask  the  Govern- 
ment for  an  increase  of  circulation — and  it  was  not  asked 
for  in  an  exceptional  and  transitory  way,  in  the  sense 
accepted  and  practised  with  success  in  all  the  countries 
suffering  from  crises,  but  in  a  much  larger  sense,  without 
time  limit. 

The  increase  of  paper  money  was  demanded  on  the  pre- 
text that  the  country  was  in  need  of  a  circulating  medium, 
confounding  paper  money  with  capital  or  believing  that 
it  could  create  capital,  without  giving  any  thought  to  the 
absolute  necessity  of  keeping  the  issue  of  paper  money 
within  the  limits  counseled  by  prudence,  with  due  regard 
to  the  existence  of  the  metallic  reserve,  which  is  the  safest, 
the  most  soHd,  and  the  principal  guaranty  of  the  paper 
currency. 

But  it  was  more  than  a  question  of  a  lack  of  encourage- 
ment; there  existed  actual  hostility  in  Italy  to  any 
attempt  whatsoever  at  a  wise  banking  reform.  Here  the 
plurality  of  institutions  revealed  all  its  power  for  harm, 
because  every  time  the  Government  showed  itself  anxious 
to  touch  upon  the  banks  of  issue  it  found  itself  hedged 
about  by  all  sorts  of  obstacles  and  difficulties,  created 


58 


The      Banks      of     Issue      in      Italy 

by  all  those  who  had  interests  in  keeping  up  the  exist- 
ing situation,  or  who  were  demanding  favors  for  one  or 
another  of  the  banks.  There  is  no  need  of  pausing  to  point 
out  how  this  happened,  since  it  is  well  known  that  in 
parliamentary  regimes  all  the  special  interests  of  any  given 
moment  easily  succeed  in  prevailing,  and  this  without 
the  intervention  of  illegal  and  dishonest  means,  as  may 
generally  be  said  to  have  been  the  case  in  Italy. 

For  the  unfortunate  events  that  have  happened  in 
Italy  in  this  connection  may  be  considered  as  an  excep- 
tion to  the  general  rule  of  correctness  of  the  banks  of 
issue;  an  exception  from  which,  perhaps,  few  countries 
have  been  free.  And  in  Italy  the  introduction  of  the 
political  element  in  favor  of  this  or  that  bank  was  or  might 
appear  justified  by  the  distinctly  regional  character  which, 
as  we  have  seen,  the  six  Italian  banks  possessed.  What 
happened  in  Italy  in  this  regard,  that  is  to  say,  the  defense 
of  the  regional  institutions,  is  not,  moreover,  very  differ- 
ent from  what  has  happened  elsewhere  and  is  now  hap- 
pening in  Austria- Hungary,  where  for  like  reasons  they 
are  asking  for  the  separation  of  the  Bank  of  Austria- Hun- 
gary into  two  banks — one  for  Austria,  the  other  for  Hun- 
gary. The  only  difference  is  that  Italy,  in  preserving  the 
existing  regional  institutions,  did  not  succeed  in  the 
attempt  to  do  the  best  thing,  whereas  Austria-Hungary 
is  trying  to  do  a  worse  thing  in  demolishing  the  best  thing 
it  already  possesses. 

If  this  explains,  and  up  to  a  certain  point  justifies  the 
failure  of  all  the  attempts  made  to  give,  in  good  season,  a 
more  normal  adjustment   to  the  banks  of   issue  in  a 


59 


National     Monetary     Commission 

country  which  had,  with  a  great  effort,  that  was  after- 
wards converted  into  a  great  sacrifice,  abohshed  forced 
currency,  these  attempts  attest  simply  that  enhghtened 
minds  understood  the  needs  of  the  situation  and  that 
several  of  the  men  who  came  into  power  tried  to  provide 
for  these  needs. 

And  without  doubt,  if  Italy  had  succeeded  between 
1885  and  1886  in  imposing  precise  rules  and  severe  regu- 
lations in  a  matter  of  so  much  importance,  the  economic 
status  of  the  country  would  have  been  spared  serious 
losses. 

The  situation  of  the  banks  of  issue  in  1885  in  com- 
parison with  that  in  1883  deserves  meanwhile  a  more 
careful  examination.  The  circulation  of  the  six  institu- 
tions shows  an  increase  of  154,000,000  lire  against  a  de- 
crease of  25,000,000  lire  in  the  metallic  reserve,  which 
had  gone  down  from  405,000,000  lire  to  382,000,000  lire, 
while  that  for  sight  liabilities  shows  an  increase  of 
5,000,000  hre. 

At  the  same  time,  however,  the  metallic  reserve  pos- 
sessed by  the  treasury  had  diminished;  from  the  sum  of 
727,000,000  lire  on  May  10,  1883,  of  which  600,000,000 
lire  had  been  received  from  the  loan,  it  had  diminished 
on  June  30,  1885  to  274,000,000  lire,  with  a  decrease  of 
453,000,000  lire  in  connection  with  the  decrease  arising 
from  the  redemption  in  metallic  money  of  the  consor- 
tion  bank  notes;  these  had  gone  down  from  a  total  of 
940,000,000  lire  on  December  31,  1882,  to  196,000,000  lire 
on  December  31,  1885. 

The  banks  of  issue  began  to  feel  meanwhile  that  their 
discounts  were  becoming  burdensome.     A  large  part  of 

60 


The     Banks     of     Issue     in     Italy 

the  operations,  especially  those  made  in  southern  Italy, 
were  not  paid  on  maturity,  so  that  renewals  had  to 
be  granted  sometimes  with  a  slight  reduction  of  the 
credit.  And  when  the  debtors  showed  that  they  could 
no  longer  meet  the  obligations  they  had  assumed,  because 
as  a  result  of  the  agricultural  crisis  the  property  was  giv- 
ing increasingly  small  returns,  the  banks  took  steps  to 
protect  themselves  by  obtaining  mortgages  as  guaranties 
for  their  credit. 


6i 


Chapter  IV. 

THE  CRI^DIT   FONCIER   OR   REALTY   CREDITS  OF   THE   BANCA 
NAZIONALE    NEL   REGNO   d'iTALIA. 

It  was  in  that  same  year  of  1885  that  the  Banca  Nazio- 
nale  nel  Regno  established  the  credit  foncier.  Because 
of  the  importance  it  assumed  in  relation  with  the  bank, 
and  because  of  the  changes  to  which  it  was  subjected, 
the  founding  of  the  credit  foncier  of  the  Banca  Nazionale 
formed  a  noteworthy  episode  in  the  history  of  Italian 
banking.  A  brief  review  of  this  event  seems,  therefore, 
opportune. 

As  soon  as  the  general  director  of  the  Banca  Nazionale, 
Signor  Giacomo  Grillo,  announced  the  intention  of  found- 
ing a  realty  credit  service,  there  arose  violent  discussions 
and  criticisms.  It  was  said  that  a  bank  of  issue,  which 
ought  to  consider  the  shortness  of  duration  and  the 
sure  recovery  of  its  loans,  could  not  properly  take  part 
in  mortgage  operations,  by  their  nature  necessarily  for 
terms  of  many  years,  and  in  support  of  this  argu- 
ment the  example  was  brought  forward  of  the  banks  of 
issue  of  the  principal  countries.  The  question  was  dis- 
cussed at  length  whether  the  proposed  credit  foncier, 
even  though  organized  as  the  general  director  of  the  bank 
proposed,  with  a  separate  administration  and  technically 
autonomous,  under  the  close  supervision  of  the  adminis- 
tration of  the  bank,  would  not  end  by  involving  the  re- 
sponsibility of  the  latter. 

The  general  director  defended  his  plan  before  the 
superior  council  of  the  bank  and  the  general  meeting  of 

62 


The     Banks      of     Issue      in      Italy 

shareholders.  He  argued  that  it  was  not  true  that  ex- 
amples were  completely  lacking  of  banks  of  issue  which 
had  established  realty  credit  departments  and  quoted 
those  of  the  banks  of  Austria- Hungary,  Greece,  Scanda- 
navia,  besides  the  two  banks  of  Naples  and  Sicily,  and 
expressed  the  conviction  that  by  assigning  to  this  special 
department  a  capital  to  be  taken  from  the  statutory 
reserve  of  the  bank,  available  for  the  tenfold  issue  of 
realty  bonds,  according  to  the  laws  in  force,  no  responsi- 
bility could  fall  on  the  Banca  Nazionale. 

He  then  justified  the  founding  of  the  credit  foncier  by 
the  convenience  of  affording  aid  to  urban  and  landed  prop- 
erty which  was  suffering  from  a  grave  crisis,  especially  in 
southern  Italy. 

In  the  opinion  of  the  general  director  of  the  Banca 
Nazionale,  the  plan  was  fully  justified  by  the  disproportion 
between  the  needs  of  the  urban  and  landed  property  in  Italy 
and  the  inadequacy  of  the  means  to  satisfy  them.  The 
law  of  June  14,  1866,  had  authorized  the  transaction  of 
mortgage  operations  by  the  Bank  of  Naples,  the  Cassa  di 
Risparmio  delle  Provincie  lyOmbarde,  a  solid  and  well- 
administered  institution,  which  was  later  to  rise  to  great 
power,  the  Istituto  Opere  Pie  di  S.  Paolo  in  Torino,  the 
Monte  dei  Paschi  di  Siena,  and  the  Cassa  di  Risparmio 
di  Bologna,  all  solid  and  exemplary  institutions.  The 
Bank  of  Sicily  was  later,  by  royal  decree  of  May  i,  1870, 
authorized  to  carry  on  realty  operations.  Judging  by 
the  nature  of  these  and  of  other  institutions  authorized 
to  make  mortgage  loans,  there  is  reason  to  believe  that 
this  kind  of  credit  was  regarded  in  Italy  almost  as  a  form 
of  charity. 

39781°— II 5  63 


National    Monetary     Commission 

But  what  especially  led  the  general  director  of  the 
Banca  Nazionale  to  propose  the  founding  of  the  realty 
credit  department  was  the  desire  to  relieve  the  dis- 
counts of  the  bank  of  the  operations  which,  although  they 
were  in  appearance  convertible  credit,  had  neverthe- 
less become,  for  the  reasons  indicated,  substantially  real 
and  proper  mortgage  operations,  impossible  to  be  liqui- 
dated in  a  short  time,  and  guaranteed  by  mortgages  on 
rural  and  urban  landed  property.  The  general  director 
of  the  bank  was  moved,  therefore,  by  lofty  economic  and 
monetary  considerations,  and  judged  that  the  transfor- 
mation, in  proper  form,  of  the  discount  operations  now 
unrealizable  was  desirable  not  only  in  the  interests 
of  the  bank,  but  also  in  the  interests  of  circulation, 
which  would  be  restricted  by  the  amount  correspond- 
ing to  the  unrealizable  operations  by  buying  in  the 
realty  bonds  that  the  credit  foncier  administration 
issued  contemporaneously  with  the  loans.  Thus  it  may 
be  said  that  this  consideration  of  general  interest  pre- 
vailed over  the  bank's  own  interests,  which  if  it  had  kept 
for  the  operations  their  character  of  bills  of  exchange 
would  have  had,  over  against  the  corresponding  interest 
paid  by  debtors,  only  the  burden  of  the  tax  on  circula- 
tion at  the  rate  of  i  per  cent,  whereas  replacing  the  notes 
by  issues  of  realty  bonds  the  bank  was  to  pay  an  in- 
terest of  4  and  4X  per  cent,  except  for  the  compensation 
to  be  derived  from  the  profit  on  new  banking  operations, 
which  could  be  carried  on  with  the  sums  collected  by 
the  liquidation  of  old  operations  through  the  investment 
of  the  capital  assigned  by  the  bank  to  its  credit  foncier 
and  through  the  sale  of  realty  bonds. 

64 


The      Banks      of     Issue      in      Italy 

But,  although  banking  operations  received  a  great 
impetus  in  consequence,  nevertheless  when  the  Banca 
Nazionale  decided  upon  organizing  the  credit  foncier  it 
ought  probably  to  have  decided  rather  to  restrict  its  action, 
because  its  own  conditions  and  those  of  the  market  made 
advisable  following  a  policy  of  concentration. 

In  the  ideas  displayed  on  this,  as  on  other  occasions,  and 
in  the  perseverance  with  which  he  struggled  to  make  them 
triumph,  the  general  director  of  the  Banca  Nazionale 
showed  that  he  possessed  rare  qualities  which  would  have 
succeeded  in  giving  a  sound  direction  to  the  bank,  if  the 
seriousness  of  the  crisis  which  seized  Italy,  through  a  num- 
ber of  causes  of  an  economic  and  political  nature,  had  not 
attacked  every  part  of  the  financial,  industrial,  commer- 
cial, and  banking  activity  of  the  country  and  had  not  car- 
ried away,  like  a  raging  torrent,  even  the  strongest  bodies 
that  it  encountered  in  its  devastating  course. 

The  exercise  of  realty  credit  by  the  Banca  Nazionale 
approved  by  the  general  meeting  of  shareholders  held  Feb- 
ruary 26,  1885,  was  authorized  by  royal  decree  on  April  5 
of  the  same  year,  in  conformity  with  the  permission  that 
the  act  of  February  22,  1885,  on  realty  credit,  had  given 
the  Government  to  grant  its  exercise  to  such  institutions 
as  should  have  fulfilled  the  requirements  of  the  said  law. 

To  the  realty  credit  administration  was  assigned  at 
first  a  capital  of  25,000,000  lire,  taken  from  the  statutory 
reserve  of  the  bank;  to  this  were  added  in  1889,  by  a  new 
decision  of  the  meeting  of  shareholders,  another  5,000,000 
lire,  also  taken  from  the  reserve.  From  September  7, 
1885,  the  date  of  the  beginning  of  the  operations,  to  June 
30,  1893,  t^e  ^^ate   when    they  ceased,   because    of    the 

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National     Monetary     Commission 

banking  law  then  under  discussion  which  forbade  all 
further  mortgage  operations  on  the  part  of  the  banks 
of  issue  and  ordered  the  liquidation  of  those  already 
under  way,  the  credit  foncier  of  the  Bank,  with  the 
30,000,000  capital,  had  concluded  mortgage  loans  for 
322,825,500  lire — that  is  to  say,  through  the  employment 
of  the  capital  assigned,  and  in  conformity  with  the  law, 

Lire. 

In  160  mortgage  accounts  current  in  cash 12,  073,  500 

In  834  loans  in  cash 17,  991,  000 

Total  of  cash  operations 30,  064,  500 

In  2,470  loans  in  4  per  cent  bonds 135,  349,  500 

In  2,675  loans  in  4^  per  cent  bonds 157,  411,  500 

Total 322,  825,  500 

By  way  of  proof  of  what  has  been  said  concerning  the 
considerations  that  led  the  general  director  of  the  bank  to 
found  the  realty  credit  department,  it  may  be  well  to 
state  that  in  the  first  few  years  it  was  feverishly  active. 
In  the  first  fiscal  year  requests  for  loans  were  presented 
amounting  to  260,000,000  lire.  In  the  report  to  the  stock- 
holders for  the  fiscal  year  1886,  the  general  director  de- 
clared :  ' '  The  credit  foncier  of  the  bank  has  developed  to  a 
degree  beyond  all  our  expectations.  This  development 
proves  very  clearly  that  its  creation  answered  a  need  felt 
by  the  country."  By  December  31,  1886,  the  credit 
foncier  of  the  bank  had  definitely  contracted  for  opera- 
tions amounting  to  about  62,000,000  lire,  and  had  under 
examination  requests  for  operations  amounting  to  about 
147,000,000  lire.  The  greater  part  of  the  operations  were 
concluded  in  the  Province  of  Rome,  because  of  the  needs 
already  shown  by  urban  property  in  connection  with  the 
building  movement  which  was  in  process  of  development 


66 


The      Banks      of     Issue      in      Italy 

there,  and  in  the  provinces  of  southern  Italy  on  account 
of  the  agrarian  crisis  which  needed  considerable  help. 

In  the  year  1887  the  operations  encountered  something 
of  a  check  through  the  difficulty  in  placing  the  realty 
bonds,  caused  by  a  money  stringency  owing  to  stock 
exchange  crises  and  to  difficulties  of  the  State  finance  which 
aroused  anxiety  because  of  a  new  deficit  in  the  budget. 
However,  in  1887  mortgage  loans  were  concluded  for  the 
amount  of  74,000,000  lire,  and  at  the  end  of  the  year  there 
still  remained  under  consideration  requests  for  loans  for 
123,000,000  lire. 

In  the  year  1888  there  was  a  lull  in  these  operations, 
which  amounted  to  45,000,000  lire  only,  making  the  total 
for  three  years  1 8 1 ,000,000  lire.  The  general  director  of  the 
bank  announced  that  "the  operations  of  the  credit  foncier 
have  now  entered  upon  their  normal  course.  To  the  rush 
for  mortgage  loans  of  the  first  few  years  there  has  suc- 
ceeded an  orderly  and  constant  demand. " 

Now,  it  is  interesting  to  note  that  out  of  the  sum  of 
181,000,000  lire  in  operations  concluded  by  the  credit  fon- 
cier in  the  first  three  years,  about  85,000,000  lire  were  used 
to  liquidate  unrealizable  operations  in  bills  of  exchange 
in  the  discounts  of  the  bank,  and  that  out  of  a  sum 
of  278,000,000  in  loans  made  for  the  whole  of  1890, 
135,000,000 — that  is  to  say,  nearly  half — were  em- 
ployed for  the  same  purpose. 

Naturally,  in  view  of  the  vicissitudes,  anything 
but  prosperous,  through  which  the  country  passed, 
dark  days  were  not  long  in  coming  upon  the  credit 
foncier  of  the  bank  as  well.  Borrowers  were  begin- 
ning to  find  themselves  in  straits,  whether  as  a  result  of 

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National     Monetary     Commission 

bad  management  of  their  property  and  ensuing  waste- 
fulness of  their  patrimony  or  because  the  crisis  from  which 
landed  property  was  suffering  was  growing  acute,  they 
commenced  by  being  behindhand  in  payments  of  dues 
of  amortizement,  and  ended  by  suspending  payments  alto- 
gether. The  credit  foncier  had  to  put  up  at  auction 
the  mortgaged  property,  which,  not  finding  purchasers, 
was  adjudged  to  the  credit  foncier  itself.  Meanwhile, 
whether  to  fill  up  gaps  which  were  appearing  in  its  bal- 
ance, or  whether  to  withdraw  from  the  market  realty 
bonds  for  sums  corresponding  to  loans  on  property 
that  had  come  into  its  possession  by  auction,  the  credit 
foncier  was  obliged  to  apply  to  the  Banca  Nazionale, 
which  opened  for  it  a  cash  credit. 

The  further  aggravation  of  the  agricultural  crisis, 
especially  in  the  south  of  Italy,  to  which  was  then  added 
the  building  crisis  of  Rome  and  other  important  centers 
of  the  peninsula,  aggravated  the  situation  of  the  credit 
foncier  of  the  bank,  and  with  it  that  of  other  kindred 
institutions. 

To  remedy  the  situation,  which  was  threatening  to 
become  serious  for  the  realty  credit  institutions  and  their 
borrowers,  opportune  legislation  came  to  the  rescue, 
containing  provisions  which  reduced  the  fiscal  taxes 
of  various  kinds,  prolonging  terms  of  payment,  and 
giving  other  facilities  of  mutual  advantage. 

The  vicissitudes  of  realty  credit  in  Italy  have  made 
plain  the  dangers  which  can  be  incurred  by  giving 
too  great  facilities  to  credit,  even  in  operations  solidly 
guaranteed,  which,  through  being  represented  on  the 
market    by    various    certificates,    different    from    bank 

68 


The      Banks      of     Issue      in      Italy 

notes,  and  through  granting  to  the  borrowers  a  long 
period  of  time  to  satisfy  the  obHgations  assumed,  would 
seem  to  be  protected  from  every  surprise.  For  even 
when  the  borrowers,  by  bad  administration  of  the 
property  or  through  loss  of  their  free  capital,  find  them- 
selves in  the  situation  of  not  being  able  to  meet  the 
obligations  assumed,  the  property  offered  in  guaranty 
should  be  sufficient  to  reimburse  promptly  the  credit 
institution. 

But  what  may  and  does  happen  in  normal  times  no 
longer  happens  in  moments  of  crisis  in  general,  and  of 
crises  of  landed  property  in  particular.  For  when  the 
value  of  real  estate  as  well  as  of  securities  declines,  capi- 
talists are  not  willing  to  decide  to  profit  by  the  decline 
and  buy;  they  always  hope  and  wait  for  prices  to  go 
down  still  lower,  and  finish  at  last,  most  frequently, 
by  making  up  their  minds  when,  after  the  crisis  has 
passed,  prices  are  going  up  again. 

Meanwhile  the  law  of  1893,  o^  which  we  shall  speak 
presently,  having  stipulated  that  the  realty  credit  depart- 
ments of  the  banks  of  issue  should  be  liquidated,  the  bank 
was  obliged  to  provide  for  regulating  its  relations  with 
its  own  realty  credit  department,  with  the  result  on  De- 
cember 31,  1893,  of  a  debt  of  about  50,000,000  lire,  over 
against  which  the  Credit  Foncier  ceded  to  the  bank 
about  17,000,000  lire  in  real  estate  (which  had  come 
into  its  possession  through  auction) ,  and  other  property 
belonging  to  it,  while  the  bank  contributed  to  close  the 
account  by  deducting  30,000,000  lire  from  its  paid-up 
capital  and  by  using  2,802,918  lire  available  residue  of 
a  payment  of  30,000,000  lire  made  in  1894  by  the  share- 

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National     Monetary     Commission 

holders  to  amortize  bills  which  had  become  overdue 
and  were  included  in  operations  of  difficult  and  tardy 
liquidation. 

On  December  31,  1908,  the  loans  still  current  of  the 
credit  foncier  of  the  bank  in  liquidation  amounted  in 
all  to  112,392,980.70  lire,  and  were  represented  to  the 
amount  of  about  4,200,000  lire  by  loans  in  cash,  and  for 
the  rest  by  obligations  in  circulation  for  a  total  of 
111,181,500  lire,  over  against  which  was  the  assigned 
fund  of  30,000,000  lire  instead  of  11,000,000  required  by 
the  terms  of  the  law.  The  credit  foncier  had  besides 
ordinary  and  extraordinary  reserves  for  about  6,500,000 
lire. 

The  surplus  assets  of  the  credit  foncier  and  the  very 
favorable  conditions  imder  which  the  liquidation  was 
now  going  on  showed  that  it  could,  in  the  end,  indemnify 
the  bank  for  the  sacrifices  it  had  been  obliged  to  make 
in  the  past. 

The  bank,  profiting  by  the  favorable  conditions  of  the 
market,  converted  in  October,  1903,  the  4>^  per  cent  into 
4  per  cent  bonds,  and  in  October,  1905,  converted  the 
4  per  cent  bonds  into  3.75  per  cent. 

The  realty  credit  administration  of  the  bank  partici- 
pated in  the  founding,  in  1886,  of  the  Istituto  Italiano 
di  Credito  Fondiario,  created  especially  to  come  more 
freely  to  the  aid  of  real  property,  which  was  demanding 
ever  increasing  assistance.  The  participation  consisted 
in  the  payment  of  5,000,004.10  lire  in  cash  and  in  the  sur- 
render of  mortgage  operations  in  cash  for  9,999,995.90 — 
that  is,  a  total  of  15,000,000  lire. 


70 


Chapter  V. 

EXCESS  OF  BUILDING  AT  ROME — DIFFICULTIES  OF  FINANCE — 
EMBARRASSMENTS   OF   THE   BANCA   ROMANA. 

Returning  to  the  general  conditions  of  Italy  in  1885  and 
to  those  in  which  the  Italian  banks  of  issue  were  involved, 
it  is  seen  that  the  unloading  of  a  part  of  the  banking 
operations  made  by  the  Banca  Nazionale  in  its  credit 
foncier  administration  did  not  diminish  its  discounts; 
these,  contrary  to  the  expectations  and  intentions  of  the 
bank,  continued  instead  to  increase  considerably,  just  as 
those  of  the  other  banks  of  issue  increased. 

Discount  operations,  which  up  to  December  31,  1885 
had  advanced  to  617,000,000  lire,  went  up  to  673,000,000 
lire  in  1886  and  to  713,000,000  lire  in  1887,  going  down  to 
674,000,000  lire  in  1888  and  rising  to  743,000,000  lire  in 
1 889,  a  total  which  was  not  exceeded  except  on  the  occasion 
of  the  crisis  of  1 907.  The  increase  in  discount  operations  of 
the  Italian  banks  of  issue  was  due  largely  to  the  aid  given 
by  them  to  the  building  associations,  which,  with  the  haste 
that  always  accompanies  work  of  a  prevailingly  specula- 
tive character,  had  undertaken  to  build  houses  in  Rome 
and  other  Italian  cities  where  a  certain  lack  of  buildings 
had  been  noticed,  a  lack  which  was  especially  evident  in 
Rome  because  of  the  growth  of  population,  due  for  the 
most  part  to  the  establishing  and  extending  of  the  public 
administration  in  the  capital  of  the  kingdom. 

The  plan  of  procedure  of  those  interested  in  the  building 
enterprise  in  Rome  and  other  cities  was  not  imlike  that 
observed  before  and  later  in  other  countries.  They  began 
in  Italy  with  the  purchase  of  land,  for  the  purpose  of  sell- 

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National     Monetary     Commission 

ing  it  again  at  higher  prices;  they  continued  by  having 
recourse  to  credit,  mortgaging  the  land  to  obtain  the  means 
necessary  to  build  the  first  story,  and  so,  from  story  to 
story,  until  the  completion  of  the  building.  This,  with 
interest  and  incidental  expenses  incurred  in  obtaining  the 
capital,  represented  normally  a  cost  to  which  the  returns 
could  not  adequately  correspond,  in  the  economic  condi- 
tions of  the  population,  especially  in  Rome,  composed 
largely  of  employees. 

Very  soon,  therefore,  these  building  associations  found 
themselves  surrounded  by  grave  difficulties.  They  had 
been  organized  partly  to  build  dwelling  houses  directly, 
partly  to  furnish  capital  to  private  builders  who  had  come 
in  swarms  on  every  hand,  but  especially  from  people 
least  provided  with  capital ;  small  contractors,  and  even 
simple  stonemasons,  had  become  imexpectedly  and  pro- 
visionally proprietors  of  great  palaces,  which  the  crisis, 
breaking  out  before  long  like  a  blast  of  wind,  was  to  carry 
away  from  them  as  if  they  were  built  of  the  same  first 
material — paper — with  which  the  capital  had  been  got 
together,  also  of  paper. 

The  period  that  elapsed  between  1885  and  1890  was  one 
of  the  saddest  Italy  has  ever  experienced.  It  was  sad 
because  of  economic  and  financial  conditions,  and  was  not 
destined  to  be  surpassed,  even  in  moral  seriousness,  except 
by  that  between  1893  and  1894.  The  lack  of  a  single 
powerful  bank  of  issue  made  itself  sharply  felt  at  that 
time,  but  instead  of  the  Government's  being  inspired  to 
an  act  of  salutary  and  heroic  energy,  it  was  persuaded  to 
persist  in  its  error.  There  was  a  considerable  increase  of 
circulation,  which  had  risen  from  900,000,000  lire  in  1884 


72 


The      Banks      of     Issue      in      Italy 

to  948,000,000  lire  in  1885,  to  1,032,000,000  lire  in  1886,  to 
1,075,000,000  lire  in  1887  and  1888,  and  to  1,116,000,000 
lire  in  1889.  This  increase  in  circulation  was  confronted 
by  a  decrease  in  the  percentage  of  the  metallic  reserve, 
which  went  down  from  a  maximum  of  51  per  cent  in  1883 
to  a  minimum  of  34  per  cent  in  1889;  whereas,  meanwhile, 
by  the  redemption  of  the  association  bank  notes  the  State 
had  considerably  reduced  its  metallic  gold  reserve,  which 
amounted  at  the  end  of  1889  to  only  160,000,000  lire. 

The  budget  had  closed  with  a  surplus  of  35,000,000  lire 
in  1884,  of  15,000,000  lire  in  1885,  and  of  12,000,000  lire 
in  1886,  but  the  surplus  was  soon  converted  into  a  deficit 
of  57,000,000  lire  in  1887  and  of  230,000,000  lire  in  1888. 

The  rupture  of  commercial  relations  with  France 
helped  to  aggravate  the  situation,  because  the  Paris 
market,  having  become  hostile  to  things  Italian,  began 
to  sell  the  rentes  with  such  fury  as  to  make  them  decline 
from  a  maximum  price  of  102.55,  reached  in  1886,  to  a 
minimum  of  90.80  in  1889.  Consequently,  through  the 
return  of  a  considerable  part  of  them  into  Italy,  exchange 
on  Paris,  which  had  gone  down  again,  as  we  have  said,  in 
1883,  after  the  liquidation  of  the  crisis  of  the  French 
market,  to  a  minimum  rate  of  98.75,  rose  in  1888-89  to 
more  than  102. 

Just  as  comfort  and  easy  circumstances,  along  with 
tranquillity,  lead  to  thoughtlessness,  so  difficulties  and  ad- 
versity lead  to  melancholy  meditation;  people  reconsider 
their  past  course,  and  pass  in  review  the  causes  of  present 
evils.  Italy  found  in  this  review  the  reason  of  the  state 
of  economic  and  financial  depression  into  which  it  had 
fallen — it  found  it  in  the  disorder  in  which  the  banking 


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National     Monetary     Commission 

regime  had  been  left;  in  the  frantic  career  of  financial 
extravagance  which  had  swelled  beyond  all  the  limits  of 
prudence  the  national  debt,  besides  exhausting  the  con- 
tributing power  of  the  citizens,  on  whom  had  been  imposed 
unbearable  fiscal  burdens. 

Naturally,  in  the  presence  of  the  grave  embarrassments 
of  a  situation  in  which  every  one  in  the  Government,  in 
Parliament,  and  in  the  country  had  his  share  of  responsi- 
bihty,  the  criticism  became  still  more  bitter  of  the  work 
of  Minister  MagHani,  whom  they  wished  to  hold  solely 
responsible  for  the  mistakes  made  by  all  and  for  the  con- 
sequences which  had  resulted  from  them.  Above  all,  the 
aboUtion  of  forced  currency,  in  presence  of  the  reappear- 
ance of  agio,  was  harshly  criticised,  and  not  a  single  one 
of  the  266  deputies  who  had  voted  for  it  with  great  enthu- 
siasm, against  only  27,  rose  to  defend  the  minister,  for 
whom,  in  remembrance  of  the  great  event,  a  gold  medal 
had  been  coined. 

However,  whatever  the  calm  technical  judgment  might 
be  as  to  the  law  for  the  abolition  of  forced  currency,  it 
should  have  been  recognized  that  many  causes  foreign 
to  it  helped  contribute  to  its  failure.  The  abolition  of 
forced  currency  would  not  have  miscarried  if  the  State 
had  not  recklessly  plunged  into  all  sorts  of  expenses  for 
railroads,  for  pubHc  works,  for  the  African  war,  and  other 
things;  and  especially  if,  as  had  been  foreseen  and  prom- 
ised by  Magliani  himself,  energetic  measures  had  been 
taken  to  complete  the  monetary  programme  by  a  careful 
regulation  of  the  banking  system. 

On  the  contrary,  Italy  was  not  wise  enough  to  derive 
any   salutary   lesson   from   the   experience   it   had  gone 


74 


The      Banks     of     Issue      in      Italy 

through,  particularly  in  the  question  of  regulating  the 
banks  and  circulation.  It  may  be  said,  rather,  that  the 
discovery  of  the  abuses  then  revealed  in  that  quarter  led 
it  to  persevere  and  commit  new  and  more  serious  errors. 
Under  the  pressure  of  the  clamors  of  pubHc  opinion, 
partly  perverted  by  those  who  had  interests  in  perverting 
it,  not  only  did  the  Government  not  provide  promptly 
for  checking  and  confining  to  its  proper  course  the  stream 
of  paper  money  that  was  overflowing  its  banks  in  all 
quarters,  but  it  Hstened  rather  to  the  voice  of  the  expan- 
sionists who  were  accusing  it  of  stopping  the  promised 
revival  of  the  activity  of  the  country  by  denying  the 
necessary  means  for  the  movement  of  business. 

Meanwhile,  at  all  the  meetings  of  the  councils  of  the 
banks  of  issue,  the  government  commissioners  gave  warn- 
ing that  they  were  obhged  to  state  that  the  circulation,  as 
appeared  from  the  statements  presented  to  the  councils 
themselves,  exceeded  the  legal  limit.  And  the  Govern- 
ment, on  the  reports  of  the  commissioners,  requested  the 
banks  to  return  to  the  normal  limits.  On  their  part,  the 
banks  replied  that  the  conditions  of  the  market  had 
rendered  necessary  an  enlargement  of  circulation,  and 
they  promised  to  return  to  the  legal  Hmits.  This  corre- 
spondence between  the  Government  and  the  banks  con- 
tinued for  some  time,  and  was  one  of  the  humorous  sides 
of  the  Italian  banking  question,  which  had  other  humorous 
sides,  although  in  the  midst  of  exceedingly  sad  ones. 

On  the  other  hand,  at  the  point  things  had  reached,  it 
was  not  possible  to  proceed  with  very  severe  methods, 
because  such  action  would  have  precipitated  the  situa- 
tion and  rendered  the  catastrophe  still  more  serious,  just 


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National    Monetary     Commission 

as,  again,  granting  the  insistent  demands  of  the  expan- 
sionists, although  putting  off  the  catastrophe,  would 
have  made  it  more  serious.  Nor,  for  the  reasons  stated, 
was  it  possible  to  apply  to  the  banks  all  the  provisions  of 
the  law  of  1874,  which,  as  it  had  not  been  repealed  by  the 
law  of  1 88 1,  still  remained  in  force.  According  to 
this,  the  increase  in  circulation  recognized  as  necessary 
for  extraordinary  and  urgent  needs  of  commerce  could 
be  granted  by  the  Government  after  trying  two  suc- 
cessive increases  of  the  discount  rate,  on  condition,  how- 
ever, that  the  excess  of  notes  should  not  exceed  40 
per  cent  of  the  capital  of  the  banks;  that  the  increase 
was  not  to  last  for  a  period  of  more  than  three  months, 
and  that  the  profits  cleared  on  the  operations  should 
accrue  entirely  to  the  treasury.  And  it  was  even  less 
possible  to  apply  the  statute  under  which  the  bank 
should  be  obliged  to  pay  the  State,  by  way  of  penalty,  a 
sum  equal  to  the  total  of  the  excess  of  circulation  beyond 
the  legal  limit  or  the  deficiency  of  the  metallic  reserve. 
This  statute,  under  the  terms  of  the  established  regula- 
tion, was  to  be  applied,  after  reporting  the  transgression 
to  the  Court,  by  the  application  of  the  penalty;  it  was 
seen  in  practice  how  ludicrously  this  extreme  severity 
was  eluded. 

This  was  the  case  not  only  because  it  was  a  question  of 
provisions  of  exaggerated  severity,  but  because  of  the  man- 
ner in  which  the  transgressions  of  the  law  had  come  about. 
On  account  of  the  situation  which  these  transgressions 
had  created  in  the  country,  and  more  especially  because 
of  the  share  the  Government  had  had  in  them  it  could 
not  condemn  the  banks  without  condemning  itself.  For 
it  was  just  at  this  time  that  the  intervention  of  the 

76 


The      Banks     of     Issue      in      Italy 

Government  in  the  conduct  of  the  banks  of  issue  was 
most  actively  and  openly  manifest,  as  will  be  seen  later. 

However,  the  Government  expressed  the  intention  of 
undertaking  to  give  better  regulations  to  the  banks,  and 
presented  a  bill  to  Parliament,  the  third  or  fourth  since 
the  abolition  of  forced  currency,  which  did  not  fare 
differently  from  those  which  had  gone  before  it,  and 
aroused  violent  discussions,  polemics,  and  criticisms.  At 
the  same  time  the  Government  ordered  an  inspec- 
tion of  the  banks  of  issue  to  ascertain  their  conditions, 
which,  especially  in  what  concerned  the  Banca  Romana, 
seemed  very  serious.  A  first  audit  of  the  cash  of  the 
Banca  Romana  seemed  to  show  a  deficit  of  8,000,000  lire. 
The  audit  was  suspended  to  make  further  examination  of 
accounts,  and  when  it  was  continued  a  few  days  later  the 
cash  was  found  to  be  correct.  However,  other  irregulari- 
ties were  found  in  the  methods  of  issuing  and  destroying 
bank  notes,  and  in  general  it  was  discovered  that  the  finan- 
cial conditions  of  the  bank  were  not  sound  and  normal. 

Once  more  the  Government  let  slip  the  opportunity  to 
liquidate  the  Banca  Romana  or  merge  it  in  the  Banca 
Nazionale,  and,  with  the  others,  to  create  a  great  in- 
stitution of  issue,  as  was  already  insistently  demanded  in 
various  quarters.  The  bill  for  the  reorganization  of  the 
banks  of  issue  failed  for  the  very  reason  that  whereas 
it  favored  the  inclinations  of  the  ignorant  crowd,  under 
the  influence  of  those  who  were  interested  in  keeping  up 
the  existing  disorder,  it  was  in  too  open  contrast  with 
public  interest  and  the  opinion  of  the  most  competent 
men  of  the  country.  It  seems  that  the  author  of  the  bill. 
Minister   Miceli,   a  very   commonplace   man,   absolutely 


77 


National     Monetary     Commission 


without  the  most  elementary  economic  education,  had 
taken  upon  himself  the  burden  of  coming  to  the  aid  of  the 
weak. 

This  bill  resembled  the  statutes  of  a  society  for  the 
guardianship  of  minors  and  the  feeble-minded;  the  anxiety 
not  for  the  public  interest,  but  for  the  defense  of  small 
banks,  was  evident  in  every  part  of  it,  so  full  was  it  of 
provisions  intended  to  defend  the  minor  banks  from 
an  imaginary  danger  of  oppression  on  the  part  of  the 
larger  institutions,  and  especially  on  the  part  of  the  Banca 
Nazionale. 

It  was  very  evident  that  the  Banca  Romana,  not  through 
the  hostility  of  others,  but  because  of  its  own  difficulties, 
was  not  in  a  position  to  accomplish  the  redemption  of 
its  notes  which  had  entered  the  coffers  of  the  other  banks, 
a  redemption  which  had  to  be  made  regularly  every  ten 
days  in  conformity  with  the  law  and  regulations.  Not- 
withstanding this  fact,  the  minister,  instead  of  rendering 
the  provisions  on  this  point  more  efficacious,  so  as  to  make 
the  Banca  Romana  feel  more  clearly  the  necessity  of  limit- 
ing its  activity  and  restricting  its  circulation,  proposed 
that  the  obligation  of  redemption  of  bank  notes  should  be 
confined  to  the  tenth  part  of  the  circulation  of  each  bank. 
This  was  equivalent  to  abolishing  the  obligation  of 
redemption  between  banks  which,  under  the  system  of 
circulation  really  at  forced  currency,  represented  the  sole 
and  only  control,  the  one  single  check  on  their  currency. 

It  may  be  well  to  say  that  of  the  six  ItaUan  banks  only 
the  Banca  Romana  demanded  insistently  and  loudly  the 
provisions  relieving  it  from  the  burden  of  the  periodical 
redemption  of  bank  notes;   and  this  began  in  1887 — that 

78 


The      Banks     of     Issue      in      Italy 

is,  from  the  time  when  its  situation  became  particularly 
unfavorable — when  it  had  difficulty  in  redeeming  the  notes 
that  were  presented  to  it  in  continually  increasing  num- 
ber, because  of  the  greater  quantity  circulating  in  the 
country,  which  tended  to  return  to  the  coffers  quickly. 
It  was  then  shown  that  the  greater  the  quantity  of  bank 
notes  in  circulation,  at  legal  or  forced  currency,  the  more 
quickly  they  are  returned  to  the  coffers  of  the  bank. 

With  a  limited  field  of  action,  for  a  long  time  confined 
to  the  Province  of  Rome  alone;  with  a  great  part  of  its 
assets  unrealizable  or  overdue,  the  Banca  Romana  did 
not  receive  sufficient  payments  to  enable  it  to  redeem  its 
notes  which  entered  in  all  the  greater  quantities  in  the 
coffers  of  other  banks,  because  the  public,  not  com- 
pletely ignorant  of  the  difficulties  of  the  Banca  Romana, 
showed  that  it  did  not  approve  of  the  notes,  and  made 
haste  to  get  rid  of  them.  As  a  result  the  bank  found  itself 
obliged  to  resort  to  costly  expedients,  such  as  the  sale  in 
the  markets  of  northern  Italy  of  Italian  rentes  in  return 
for  notes  of  the  Banca  Nazionale  to  be  presented  to  the 
latter  in  redemption  of  its  own  notes;  these  rentes  it 
bought  back  at  Rome  with  its  own  notes,  thus  disturbing 
also  the  hom.e  market  of  rentes. 

At  the  distance  of  twenty  years,  when  the  facts  of  the 
situation  have  either  been  forgotten  or  grown  confused, 
what  happened  then  in  Italy  may  well  seem  incredible. 
But  it  must  be  stated  and  repeated  that  the  Government 
believed  the  very  gravity  of  the  situation  justified  its 
procedure. 

Doubtless  it  seems  inexplicable  to-day  that  the  Govern- 
ment should  allow  an  institution  of  issue  to  violate  the 

39781°— II 6  79 


National    M  onet  ary     Commission 

articles  of  the  law;  that,  also,  with  manifest  injury  to 
the  other  banks  of  issue,  it  should  prepare  to  lay  before 
Parliament  new  laws  all  to  the  advantage  of  the  Banca 
Romana,  which  was,  among  them  all,  least  worthy  of 
consideration;  but  what  seems  inexplicable  to-day  had 
at  that  time  a  reason,  if  not  a  justification,  in  the  special 
conditions  of  the  capital  of  the  Kingdom,  and  in  general 
in  the  ideas  which  prevailed  in  Parliament  and  the 
country  concerning  banking  regulations,  ideas  decidedly 
and  unconditionally  in  favor  of  the  plurality  of  banks, 
the  grave  defects  of  which  people  either  did  not  or  would 
not  see. 

The  feverish  expansion  which  the  building  industry 
entered  upon  had  flooded  Rome  with  a  new  popula- 
tion, composed  largely  of  farmers  who  abandoned  the 
country,  attracted  by  the  seductions  of  the  city  and  the 
easier  living  offered  by  the  work  of  building.  The  Banca 
Romana,  hard  pressed  by  its  difficulties,  and  not  being  able 
to  redeem  the  notes  that  were  presented  to  it  from  other 
banks,  turned  to  advantage  the  conditions  created  in  the 
capital  by  the  great  mass  of  workmen  who  had  swarmed 
there  for  the  work  of  building,  and  declared  that  if  it 
were  forced  to  redeem  its  notes,  it  would  be  absolutely 
obliged  to  suspend  operations;  it  did  not  fail  to  depict  to 
the  Government  all  the  consequences  that  would  follow 
the  suspension  of  the  work  in  Rome,  and  of  the  idleness 
of  thousands  of  workmen.  And  since  there  were  news- 
papers on  hand  that  obligingly  echoed  this  anxiety  of  the 
Banca  Romana  for  the  well-being  of  the  working  classes, 
and  for  the  tranquillity  of  the  capital  of  the  Kingdom,  the 
workmen  began  to  grow  restless  and  threatened  to  make 


80 


The     Banks     of     Issue     in     Italy 

trouble,  which  naturally  exercised  a  certain  influence  on 
the  men  who  were  in  the  Government,  at  a  time  when 
labor  disorders,  agitations  and  strikes  had  not  yet  become 
national  institutions,  as  it  is  now  the  case. 

Nor  was  the  conciliatory  and  benevolent  attitude  of  the 
Government  toward  the  Banca  Romana  due  to  this 
alone,  for  the  bank  managed  cleverly  to  touch  and  make 
vibrate  other  strings  of  its  instrument.  It  had  succeeded 
the  ancient  Bank  of  the  Papal  States;  it  was  given  the 
monopoly  of  issue  of  these  same  States ;  it  was  in  posses- 
sion of  special  privileges,  so  that,  as  we  have  seen,  the 
papal  government  itself  had  undertaken  to  guarantee  its 
notes.  In  view  of  all  these  things,  the  Banca  Romana 
did  not  let  slip  the  opportunity  to  bewail  the  happy  time 
in  which  it  was  absolute  mistress  without  rivals  and  with- 
out enemies.  And  it  turned  to  account  the  parochial 
sentiment  of  the  population,  making  it  seem  that  its 
adversaries  were  attem.pting  to  oppose  in  it  the  only 
local  financial  institution  in  hatred  for  the  city.  Having 
placed  the  question  on  this  basis,  it  was  easy  for  the 
Banca  Romana  to  find  adherents  and  helpers,  and  to 
win  over  the  sympathy  of  part  of  the  population,  all  the 
easier  to  obtain  since  the  Banca  Romana  seem^ed  to  be 
the  victim  of  the  new  elements  which  had  come  to  Rome 
from  other  provinces  and  were  fighting  in  it  a  Roman 
institution. 

Henceforth  there  were  few  who  were  not  persuaded 
that  the  Banca  Romana  was  a  victim  and  that  the 
Banca  Nazionale,  which  had  long  cherished  the  plan  of 
becoming  sole  bank  of  issue,  was  trying  to  throttle  it. 
And  though  even  after  the  discovery  of  the  disastrous 


8i 


National     Monetary     Commission 

situation  of  the  Banca  Romana  the  beUef  in  this  legend 
still  persisted,  just  as  many  people  in  Italy  and  elsewhere 
still  beheve  it  even  to-day,  nevertheless,  as  it  will  be  easy  to 
prove,  it  is  nothing  but  a  fiction  cleverly  foisted  on  the 
public;  and  since  the  relations  existing  between  the 
Banca  Nazionale  and  the  Banca  Romana  and  the  results 
that  came  from  them  are  of  an  interest  which  transcends 
historical  curiosity  and  makes  clearer  one  of  the  vices 
of  the  plurality  of  banks,  it  does  not  seem  superfluous 
to  reestablish  the  truth  of  these  things. 

That  Signor  Giacomo  Grillo  had  become  a  decided 
partisan  of  the  superiority  of  the  unity  of  issue  after  the 
painful  experiences  caused  by  plurality  is  a  fact  beyond 
all  doubt ;  but  being  a  man  of  exemplary  uprightness  and 
loyalty,  he  wished  the  desired  end  to  be  attained,  in  the 
interests  of  the  country,  by  the  common  consent  of  the 
various  banks  of  issue  and  the  Government,  and  the 
approval  of  Parliament.  Consequently,  he  attempted 
several  times  to  negotiate  a  fusion,  both  with  the 
Banca  Nazionale  Toscana  and  the  Banca  Romana. 

But  the  situation  of  the  latter  bank,  as  was  shown 
later  in  1893,  was  an  obstacle  to  any  sort  of  agreement, 
since  consenting  to  a  fusion  would  have  meant  reveal- 
ing the  ruinous  condition  it  was  in.  For  the  rest,  the 
personal  relations  of  the  general  director  of  the  Banca 
Nazionale  with  the  governor  of  the  Banca  Romana  were 
marked  by  the  most  sincere  cordiaUty,  and  when  the 
Banca  Romana  began  to  find  itself  in  difficulties  and 
unable  to  redeem  its  notes,  the  general  director  of  the 
Banca  Nazionale  was  liberal  in  making  concessions  to  it. 
He  consented  to  keep  back  in  the  coffers  of  the  Banca 


82 


The     Banks      of     Issue     in      Italy 

Nazionale  as  much  as  4,000,000  lire  in  bank  notes  of  the 
Banca  Romana  without  demanding  redemption;  and 
since,  later,  this  sum  subtracted  from  the  obligation  of 
redemption  proved  insufficient,  the  general  director  will- 
ingly consented  to  the  recommenda^tions  made  by  the 
Government  to  show  the  greatest  consideration  for  the 
Banca  Romana,  and  declared  that  his  attitude  was  con- 
ciliatory; and  on  September  24,  1890,  he  laid  the  situa- 
tion before  the  superior  council  and  proposed  to  increase 
from  4,000,000  lire  to  6,000,000  lire  the  fund  of  notes  of 
the  Banca  Romana  to  be  held  back  from  redemption, 
especially  as  the  Government  had  consented  to  free  from 
taxation  a  corresponding  sum  of  notes  of  the  Banca 
Nazionale. 

The  council,  although  expressing  its  anxiety  for  the 
responsibility  which  the  Banca  Nazionale  was  assuming, 
approved  the  proposal  of  the  general  director.  October 
22  of  the  same  year,  after  fresh  recommendations  from 
the  Government,  the  general  director  advised  increasing 
to  9,000,000  lire  the  cash  credit  opened  for  the  Banca  Ro- 
mana; by  this,  with  the  fund  held  back  and  the  cash  credit, 
the  Banca  Nazionale  had  consented  to  withhold  from  the 
obligation  of  redemption  15,000,000  lire  in  bank  notes 
of  the  Banca  Romana,  which  then  had  a  circulation  of 
74,000,000  lire. 

But  this  is  not  all:  as  a  result  in  1894  of  the  Govern- 
ment investigation  of  banks,  it  was  found  that  in  1888, 
at  the  time  of  the  inspection  made  of  the  Banca  Romana, 
the  general  director  of  the  Banca  Nazionale,  on  a  simple 
request  from  the  Governor  of  the  Banca  Romana,  had 
consented  to  pay  over  to  it  the  sum  of  8,000,000  lire,  which 


83 


National    Monetary     Commission 


amount  was  supposed  to   have  been  used  to  fill  up  the 
deficit  discovered  in  the  first  audit  of  the  cash. 

The  discovery  of  the  loan  made  by  the  Banca  Nazionale 
to  the  Banca  Romana  suggested  to  Deputy  Cavallotti  the 
idea  of  making  an  inquiry  of  the  Government  as  to  the 
relations  between  the  general  directors  of  the  two  banks. 

So  Signor  Grillo,  reputed  to  be  a  most  bitter  enemy  of 
the  Banca  Romana,  appeared  now  as  an  accomplice  in  the 
misdeeds  of  this  bank,  for  which  it  was  believed  he  had 
furnished  the  means  to  make  up  a  cash  deficit!  Deputy 
Cavallotti,  warned  of  the  grave  error  into  which  he  had 
fallen  in  suspecting  an  understanding  between  the  heads 
of  the  two  banks,  refused  to  lay  his  question  before  the 
Chamber  of  Deputies,  even  though  the  theme,  however 
absurd,  m.ust  have  seemed  attractive,  since  to  attack  and 
fight  the  Banca  Nazionale  and  its  administration  had 
always  been  and  was  still  a  popular  and  meritorious 
undertaking. 

In  fact,  if  the  Government,  in  the  difficult  moments  the 
country  went  through,  which  had  made  perfectly  evident 
the  deficiencies  of  the  banking  system,  still  hesitated  to 
make  the  timely  provisions,  it  was  certainly  not  because 
of  unjust  compromise  or  for  unworthy  reasons;  but  it 
was  on  the  one  hand  from  the  anxiety  not  to  create 
more  serious  embarrassments  in  the  country  by  disturb- 
ing the  state  of  things  which  had  grown  up,  and  on  the 
other  hand,  from  the  persuasion  that  any  bold  and  radical 
plan  of  banking  reform  vrould  fail  in  the  face  of  the  coali- 
tion of  those  interested  in  maintaining  the  banking  system 
then  in  force.  There  is  no  doubt  that  a  very  great  ma- 
jority of  the  Chamber  was  in  favor  of  the  plurality  of  banks 


84 


The      Banks      of     Issue      in      Italy 

because  of  considerations  of  a  regional  nature.  And, 
indeed,  whether  from  fear  of  being  suspected  interested 
partisans  of  the  Banca  Nazionale,  or  for  other  reasons, 
the  fact  is  that  never  did  a  single  deputy  rise  in  the 
Chamber  to  call  to  mind  its  meritorious  service  or  to  de- 
fend its  interests,  ever  one  and  the  same  with  those  of  the 
country,  whereas  the  guardianship  of  the  interests  of  the 
minor  banks  always  found  strong  and  zealous  champions. 

In  examining  in  1893  the  banking  bill  presented  by  the 
Government  an  influential  deputy  felt  obliged  to  write  that 
the  plurality  of  banks  was  one  of  the  most  precious  con- 
quests and  unchanging  principles  of  the  former  party  of 
the  Left  of  the  Italian  Parhament. 

Francesco  Crispi,  in  the  presence  of  the  severe  criticisms 
aroused  against  the  bill  presented  by  Minister  MiceU,  was 
persuaded  of  the  necessity  of  a  change  of  direction.  Al- 
though he  did  not  have  the  clearness  of  ideas  that  results 
from  complete  knowledge  of  the  subject,  he  had,  however, 
the  broad  insight  that  Italy  needed  to  lay  aside  a  hybrid 
banking  system  which  had  been  shown  in  every  respect  to 
be  pernicious,  and  he  felt  the  noble  ambition  to  provide  the 
country  with  a  powerful  institution,  which,  after  the  exam- 
ple of  France  and  England  and  other  countries,  should  be 
an  effectual  regulator  of  the  ciurency  and  a  strong  pro- 
tector for  State  and  people  in  difficult  moments. 

Having  set  aside  the  Miceli  project,  he  called  to  Rome 
Francesco  Ferrara,  the  glory  of  economic  science,  and  gave 
him  the  task  of  studying  the  very  serious  question  and  pro- 
posing for  it  the  solution  which  best  answered  the  situation 
of  Italy  at  that  moment.  This  illustrious  man,  who  was 
the  most  weighty  champion  of  economic  liberty,  and  who, 


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National     Monetary     Commission 

as  deputy  and  minister,  had  fought  every  idea  of  monopoly 
and  had  flung  himself  violently  against  the  close  relations 
which  had  existed  in  the  past  between  the  State  and  the 
Banca  Nazionale,  was  not  deaf  to  the  clear  call  of  the  situa- 
tion and  ended  by  recognizing  that  even  Italy  would,  like 
other  countries,  derive  marked  benefit  from  the  action  of 
a  great  central  bank  of  issue. 

But  the  ministry  presided  over  by  Francesco  Crispi  fell 
before  he  had  been  able  to  give  concrete  form  to  his  plan; 
it  fell,  it  was  said,  perhaps  not  without  truth,  for  the  very 
reason  that  it  had  expressed  the  bold  intention  of  creating 
a  sole  bank  of  issue — and  the  banking  confusion  continued. 

The  Italian  Government,  for  the  reasons  stated  above, 
not  only  did  not  know  how,  did  not  wish  to,  and  could  not 
inter\^ene  energetically  to  reform  the  currency,  but  was 
itself  the  cause  of  its  growing  worse.  And  yet,  however 
much  political  animosities,  impelled  by  that  instinct  of 
cannibalism  which  is  the  principal  characteristic  of  the 
politician,  attempted  to  shatter  the  reputations  of  those 
who  were  in  the  Government  at  the  time  of  the  banking 
disorders,  we  must  repeat  that,  save  for  minor  exceptions, 
the  men  who  came  into  power  gave  a  lofty  example  of 
honesty  and  rectitude.  The  intervention  of  political 
power  in  banking  affairs  may,  from  certain  points  of  view 
and  with  due  allowance  for  the  grave  difficulties  through 
which  Italy  passed,  be  considered  untimely  and  harm- 
ful; but  at  the  same  time  it  must  be  acknowledged  up- 
right in  the  intentions  that  counseled  it,  which  were 
always  prompted  by  the  desire  to  spare  the  country 
serious  disasters. 


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Chapter  VI. 

THE   BUILDING    CRISIS   AND    BANKING   SUBSIDIES. 

We  have  already  seen  the  procedure  of  the  building 
industry  at  Rome  and  how  it  was  based  essentially  on 
credit.  We  should  add  that  when  the  slender  funds  were 
exhausted  that  the  building  associations  and  other  banking 
firms  could  place  at  the  disposal  of  the  building  industry, 
it  was  necessary  for  the  builders  and  manufacturers  who 
were  connected  with  the  building  movement  of  Rome  and 
the  other  cities  to  discount  and  rediscount  their  paper  with 
foreign  banks  and  institutions,  especially  in  France  and 
Switzerland. 

Now,  it  was  precisely  in  the  years  1887  and  1889  that 
the  close  relation  that  exists  between  the  economic  con- 
ditions of  a  country  and  those  of  public  finance  was  once 
more  made  evident;  it  was  manifest  how  easy  it  is,  some- 
times unavoidable,  for  the  disorders  of  the  latter  to  exer- 
cise an  immediate  direct  effect  on  the  former;  just  as 
impaired  finance  damages  the  public  economy,  so  the  bad 
conditions  of  the  public  economy  are  reflected  unfavor- 
ably on  finance.  The  unfriendliness  of  the  Paris  market 
at  this  time,  due  to  misunderstandings  that  were  fortu- 
nately cleared  up  later,  had,  as  we  have  already  said,  in- 
flicted considerable  losses  on  Italian  rentes  and  likewise 
on  other  Italian  securities  owned  in  that  and  other  for- 
eign markets,  with  the  inevitable  effect  of  the  excessive 
rise  in  exchange.  The  principal  cause  of  the  decline  in 
Italian  securities  and  the  rise  in  exchange  was  the  unex- 
pected appearance  in  the  budget  of  a  deficit  of  230,000,000 

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National     Monetary     Commission 

lire,  of  which  126,000,000  hre  were  due  to  an  increase  in 
mihtary  expenditures,  besides  a  deficit  of  235,000,000  Hre 
in  extraordinary  expenditures  for  building  raihoads. 

The  situation  seemed  disquieting  also  because  specu- 
lators interfered  to  aggravate  it  to  their  own  advantage 
by  manipulating  prices  downward.  It  was  then  that  the 
foreign  banks  and  bankers  who  had  given  extensive  credit 
to  building  associations  and  builders  made  it  plain  that 
they  were  not  only  not  disposed  to  give  further  discounts 
to  either  of  them,  but  also  that  they  would  refuse  to 
renew  the  current  operations,  of  which  they  were  de- 
manding immediate  payment  on  maturity.  From  an 
approximate  estimate,  inferior  to  the  reality,  it  appeared 
that  the  paper  coming  from  the  building  industry  and 
discounted  abroad  amounted  to  about  350,000,000  lire. 
The  threat,  already  acted  upon  here  and  there,  of  demand- 
ing immediate  payment  of  this  paper  made  the  situation 
appear  very  serious,  since  it  would  cause  as  an  inevitable 
consequence  the  failure  of  the  building  associations  and 
perhaps,  too,  that  of  the  principal  credit  institutions 
whose  interests  were  now  closely  allied  with  them.  And 
as  the  disturbance  of  the  public  finances  had  had  a  large 
share  in  provoking  the  impending  crisis  of  the  market  of 
Italian  securities,  this  crisis  w^ould,  in  its  turn,  aggravate 
the  financial  and  monetary  crisis.  In  order  to  ward  off 
such  a  great  misfortune  the  Government  intervened  ener- 
getically with  the  banks  of  issue,  and  particularly  with 
the  Banca  Nazionale,  asking  it  to  come  promptly  to  the 
help  of  the  building  associations,  in  order  to  put  them  in 
a  position  to  meet  the  obligations  assumed  toward  for- 
eign banks  and  bankers.     The  discussions  were  long  and 


88 


The      Banks      of     Issue      in     Italy 

violent.  The  Banca  Nazionale  hesitated,  and  did  not  fail 
to  measure  the  possible  danger  it  was  about  to  incur;  but 
it  finally  acted  on  the  high  moral  consideration  of  avoiding 
a  crisis  which  would  make  Italy  appear  a  country  in  dis- 
graceful bankruptcy.  This  consideration  and  the  very 
serious  anxiety  as  to  the  consequences  that  would  result 
for  the  country  led  the  Banca  Nazionale  to  give  extensive 
aid  to  the  building  industry  threatened  with  disaster. 

This  happened,  too,  because  in  the  last  analysis  the  con- 
viction prevailed  that  everything  would  be  straightened 
out  without  loss.  The  faith  in  a  prosperous  future  for  the 
capital  of  the  Kingdom  seemed  to  assure  a  favorable  out- 
come for  these  banking  and  building  subsidies  at  first  con- 
sidered as  dangerous.  And  we  must  not  forget  that  what 
helped  to  overcome  the  resistance  of  the  bank,  and  led  it 
to  intervene,  was  the  belief  that  it  could  save  the  amounts 
which  had  already  been  involved  in  the  first  aid  given  to 
the  building  industry.  The  most  difficult  thing  in  busi- 
ness is  always  knowing  how  to  lose  a  small  amount  at  the 
proper  time  in  order  to  avoid  losing  a  larger  sum  later. 
And  that  is  exactly  why  those  who  are  in  need  of  help 
always  ask  for  a  part  of  what  they  need  to  save  their 
situation,  calculating  that  the  rest  will  come  later,  because 
a  person  who  has  given  the  first  part  will  not  wish  to  lose 
it,  and  to  save  and  secure  it  will  give  the  rest  as  well. 

Another  thing,  too,  that  argued  in  favor  of  the  subsidies 
was  the  desire  to  avoid  the  losses  that  would  come  upon 
the  bank,  directly  and  indirectly,  from  the  ruin  of  the 
building  and  credit  companies,  all,  as  we  have  said,  more 
or  less  largely  involved  in  the  building  enterprises  of 
Rome  and  other  cities. 


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National    Monetary     Commission 

It  may  be  said,  however,  that  there  prevailed  at  this 
moment  an  optimistic  opinion  concerning  the  outcome  of 
the  operations  in  favor  of  the  building  associations;  but 
such  an  optimistic  opinion  was  too  much  like  the  argu- 
ments with  which  one  tries  to  justify  a  step  which  it  is  not 
possible  to  retrace,  or  the  necessity  of  meeting  an  obhga- 
tion  that  is  not  approved  of,  but  can  not  be  put  aside  and 
decHned. 

The  very  serious  and  not  unjustified  anxiety  of  this  mo- 
ment took  away  from  the  Government  and  the  banks  the 
freedom  of  choice;  it  hindered  the  calm  examination  of 
the  situation  and  the  exact  estimate  of  the  losses  which, 
in  comparison  with  the  benefits  expected,  would  result 
from  their  intervention. 

In  the  report  to  the  shareholders  on  the  operations  of 
the  year  1889,  the  general  director  of  the  Banca  Nazionale 
declared : 

"Meanwhile  we  have  been  obliged  to  witness  a  greater 
aggravation  of  the  building  crisis,  in  consequence  of  the 
continued  withdrawal  of  foreign  capital  which  had  lib- 
erally subsidized  the  speculation  in  building  in  more  than 
one  of  our  cities  and  had  stimulated  its  excesses;  from 
this,  therefore,  arose  the  banking  crisis  of  Turin,  the  bad 
effects  of  which  reacted  on  other  regions. 

**  And  as  if  all  this  were  not  enough,  we  had  the  increas- 
ing distrust  on  the  part  of  capital,  encouraged  by  the  cor- 
rupt passion  for  destruction  that  seizes  everything  and 
everybody  and  grows  strong  and  rejoices  in  the  ruin  and 
disgrace  which  it  creates  around  itself;  distrust  also  en- 
couraged by  the  frenzy  of  speculators  who  do  not  know 
the  bounds  of  rectitude  and  honesty,  and  who  recognize 


90 


The      Banks      of     Issue      in      Italy 

no  check,  not  even  the  consideration  of  the  serious  harm 
they  are  inflicting  on  the  economy  of  the  country. 

''These  in  broad  outlines  are  the  conditions  under 
which  business  was  done  during  the  financial  year  of  which 
we  must  speak  to  you;  the  difficulties  our  institution  had 
to  encounter  during  the  year  are  connected  with  them. 
This  action,  you  will  acknowledge,  gentlemen,  could  not 
be  calm  and  normal. 

"  It  was  not  possible  to  limit  it  to  the  ordinary  subsidies 
that  a  bank  of  issue  distributes  to  merchants  and  manu- 
facturers to  aid  in  their  development  and  expansion. 
We  have  not  neglected  the  discharge  of  this  function,  but 
we  have  Hkewise  been  obliged  to  listen  to  the  call  of  other 
duties  and  to  fulfill  them.  An  institution  like  ours  could 
not  be  indifferent  to  such  unusual  events  and  misfortunes 
as  those  of  this  past  year.  When  credit  is  so  violently 
beset,  as  was  the  case  especially  in  the  second  half  year,  pri- 
vate interests  placed  in  jeopardy  take  such  forms,  threaten 
to  multiply  in  so  many  and  such  ways,  that  they  assume 
the  character  of  high  public  interest,  v/hich  claims  protec- 
tion by  the  energetic  intervention  of  the  Government  and 
the  institutions  to  whom  is  intrusted,  by  the  reason  of  their 
own  character  and  also  for  their  own  protection,  the  de- 
fense of  the  public  credit  both  at  home  and  abroad.  And 
so,  gentlemen,  when  the  danger  of  failure  first  threatened  a 
well-known  credit  establishment,  which  until  recently  had 
enjoyed  the  greatest  confidence,  the  Government,  foresee- 
ing the  very  disastrous  consequences,  widespread  beyond 
all  measure,  that  would  result  from  this  failure,  urged  the 
larger  establishments  to  come  to  the  aid  of  the  situation. 
The  Banca  Nazionale  consented  and,  deciding  that  in  the 


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National    Monetary     Commission 

market  of  Turin  were  concentrated  the  interests  of  other 
regions,  helped  it  Hberally.  Then  the  bank  judged  advisa- 
ble to  stipulate  an  agreement  with  the  Government  ena- 
bling it  to  count  on  an  increase  of  circulation  of  50,000,000, 
so  that  the  help  given  in  that  special  direction  should 
not  render  its  available  funds  insufficient  for  ordinary 
operations. 

"  The  sum  of  50,000,000  was  only  a  part  of  that  already 
distributed  and  still  remaining  to  be  distributed  in  order 
to  avoid  the  catastrophes  threatened  in  every  direction, 
but  we  did  not  ask  for  more,  bearing  in  mind  always  that 
an  excessive  increase  of  circulation  brings  evils  outweigh- 
ing the  monetary  advantages  derived  from  it.  On  the 
other  hand,  we  calculated  that  the  contraction  of  business 
in  general,  which  was  already  visible  and  promised  to 
increase  in  the  near  future,  would  justify  us  in  devoting 
to  that  purpose  also  a  part  of  the  ordinary  disposable 
funds.  In  the  agreement  which  we  have  just  outlined 
the  Government  reserved  for  itself  part  of  the  profits  on 
operations  made  with  the  50,000,000  excess  of  circulation 
authorized  at  the  rate  of  i  per  cent  on  the  excess  profits 
that  should  result  within  the  limits  of  50,000,000. 

"After  this  agreement  we  were  able  to  arrange  terms 
with  the  Banca  Tiberina,  key  of  the  situation,  for  the 
well-known  subsidy  of  40,000,000,  including  in  this  sum 
the  amount  for  which  we  were  already  involved.  The 
operation  was  of  necessity  made  and  carried  through  by 
discounting  paper  having  the  forms  required  by  our 
statutes.  Further  subsidies  were  afterwards  granted  in 
the  same  manner  to  the  Compagnia  Fondiaria  Italiana 
and  others. 


92 


The      Banks      of     Issue      in      Italy 

''This  large  assistance  given  for  the  purpose  of  saving 
the  country  from  widespread  and  inevitable  ruin,  the 
extent  and  consequences  of  which  it  was  not  and  is  not 
possible  to  measure,  received  comments  of  various  kinds; 
but  we  do  not  deem  it  necessary  to  go  into  them  deeply 
with  you.  We  will  only  say  that,  before  and  after,  we 
were  more  sensible  to  those  who  blamed  us  than  to  those 
who  praised.  If  we  had  decided  not  to  yield  there  is 
good  reason  to  believe  that  the  censures  would  have  been 
much  more  severe  on  the  day  when  the  Banca  Nazionale, 
on  which  everybody's  eyes  were  fastened,  allowed  ruin 
to  pile  upon  ruin,  showing  for  the  first  time  an  impas- 
sivity in  contrast  with  its  not  inglorious  past,  and  with 
the  aims  which  must  always  be  present  to  the  adminis- 
tration. 

"We  have  used  every  means  to  protect  your  interests 
from  being  compromised  by  the  special  operations  which 
were  concluded,  and  we  venture  to  believe  that,  within 
a  period  the  duration  of  which  we  can  not  up  to  the  pres- 
ent moment  foresee,  these  operations  will  fulfill  our  ex- 
pectations and  give  a  proper  compensation  to  our  efforts 
and  your  rightful  interests." 

In  the  very  grave  anxieties  set  forth  with  so  much 
efficiency  the  general  director  of  the  Banca  Nazionale  was 
unwilling  to  take  into  account  that  the  building  crisis, 
henceforth  inevitable  and  on  the  point  of  breaking  out 
with  great  violence,  was  due  to  the  excess  of  production 
of  a  commodity  which  could  not  be  sent  to  another  mar- 
ket to  be  disposed  of,  but  would  be  obliged  to  wait  on 
the  very  place  of  production  for  the  purchaser  who  would 
come  only  tardily  through  the  natural  but  slow  increase 


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National    Monetary     Commission 

of  population ;  that  consequently  capital  would  remain  a 
long  time  without  interest  and  would  diminish  auto- 
matically. Kven  less  did  anyone  think  of  studying  the 
number  of  vacant  apartments  and  the  annual  in- 
crease of  the  population,  in  order  to  get  at  least  an 
approximate  idea  of  the  time  that  would  elapse  before 
the  houses  would  be  inhabited  and  the  capital  involved 
receive  a  return.  Neither  did  they  consider  that,  in  any 
case,  investments  such  as  those  solicited,  even  if  they  had 
been  solidly  and  abundantly  secured,  were  neither  suitable 
nor  advisable  for  banks  authorized  to  issue  notes,  for 
these  banks  would  thus  tie  up  a  large  part  of  their  avail- 
able cash,  with  the  certain  reaction  upon  conditions  of 
circulation  and  credit  in  general. 

The  seriousness  of  the  situation,  the  terror  because 
of  the  imminent  peril,  and  the  urgent  need  of  relief  made 
imperative,  seemingly,  the  intervention  which  the  Govern- 
ment not  only  urged  on,  but  also  cooperated  in;  for, 
although  it  was  anxious  about  the  already  abnormal 
conditions  of  the  circulation  of  the  Banca  Nazionale, 
it  consented  to  arrange  with  it  the  agreement  men- 
tioned in  the  report  of  the  general  director,  and,  besides, 
put  at  the  disposal  of  the  bank  a  sum  of  15,000,000  lire 
in  silver  to  cover  a  like  sum  of  bank  notes,  on  condition 
of  having  40  per  cent  of  the  profits  of  the  operations 
the  bank  carried  on  with  it.  The  plan  for  the  State's 
sharing  in  the  profits  of  these  extraordinary  operations 
is  the  proof  of  the  prevailing  optimism,  spontaneous 
or  reflected.  People  talked  and  made  arrangements 
about  profits,  not  foreseeing,  even  distantly,  losses; 
since  the  worst  that  was  feared  could  happen  to  the  banks 


94 


The      Banks      of     Issue      in      Italy 

was  to  be  obliged  to  wait  too  long  for  realizing  on  their 
credit.  What  is  more,  the  smaller  banks  all  expressed 
their  resentment  at  being  excluded  from  such  a  mag- 
nificent banquet,  served  up  by  that  contract  to  the  single, 
privileged  Banca  Nazionale,  and  a  chorus  of  many  voices 
united  in  upholding  the  complaints  of  these  institutions. 

This  incident  is  recorded  here  because,  in  the  presence 
of  the  tardy,  bitter  censures  against  the  Government  and 
the  Banca  Nazionale  which  arose  after  people  had  been 
able  to  ascertain  the  futility  of  subsidizing  the  building 
industry  and  the  institutions  that  were  interested  in  it, 
and  the  gravity  of  the  losses  which  the  bank  and  the  cur- 
rency of  the  country  suffered  from  it,  it  is  well,  for  the 
sake  of  historic  accuracy,  to  state  that  the  Government 
was  prompted,  and  even  incited,  by  public  opinion  that 
demanded  the  avoidance  of  the  impending  ruin. 

It  is  enough  to  reread  what  was  written  in  the  news- 
papers of  the  time  to  get  an  exact  idea  of  the  status  of 
Italian  public  sentiment  on  this  question.  A  few  isolated 
voices  were  raised  then  to  give  warning  that  bank  notes 
were  not  made  for  the  use  to  which  they  had  been  put, 
and  that  it  was  a  grievous  mistake  to  throw  the  good 
money  of  the  banks  after  the  bad  money  of  a  wild  specu- 
lation already  condemned  to  fall  beneath  the  weight  of  the 
errors  it  had  committed;  but  these  voices  were  drowned 
in  the  clamors  of  the  crowd,  and  they  were  attributed  to 
Cassandras,  predicting  the  ruin  of  the  country,  or  to  bear 
operators  who  selfishly  desired  that  ruin  and  were  waiting 
to  speculate  on  it. 

Whatever  judgment  may  be  passed  now  on  the  help 
given  at  that  time  by  the  Italian  banks,  by  direct  inter- 

39781°— II 7  95 


National    Monetary     Commission 

vention,  and  that  too  with  the  participation  of  the  Gov- 
ernment, help  which  constituted,  again,  through  the 
consequences  that  grew  out  of  it,  one  of  the  most  note- 
worthy episodes  in  the  history  of  ItaUan  banking,  it 
must  in  all  truth  be  acknowledged  that  the  Govern- 
ment itself  was  moved  by  the  praiseworthy  intention 
of  avoiding  a  crisis  that  would  have  jarred  to  the  foun- 
dations the  whole  financial  and  economic  edifice  of  the 
country,  and  that  the  banks  which  seconded  it  were 
inspired  by  the  same  patriotic  desire  for  the  public  good. 


Chapter  VII. 

CONDITIONS  OF  CURRENCY  IN  1890 — MUTUAL  REDEMPTION 
OE  NOTES  AMONG  THE  BANKS  OF  ISSUE — SCHEMES  FOR 
BANKING    REFORM. 

There  is  no  doubt  meanwhile  that  as  a  result  of  the  ex- 
traordinary operations  concluded  by  the  banks  in  favor 
of  the  building  industry,  the  conditions  of  the  currency 
were  growing  worse.  On  December  31,  1890  the  notes 
amounted  to  1,126,000,000  lire,  while  the  metallic  reserve 
was  358,000,000  lire,  with  a  diminution  of  26,000,000  lire 
in  comparison  with  the  end  of  1889.  The  proportion 
between  the  reserve  and  the  notes  in  circulation  had  gone 
down  from  year  to  year  from  34  per  cent  to  32  per  cent,  a 
minimum  never  reached  until  then. 

On  the  other  hand,  an  amelioration  was  noted  that 
year  in  the  State  finances  and  even  in  economic  con- 
ditions in  general.  The  budget  had  gone  from  a  deficit  of 
230,000,000  lire  in  1888  to  a  surplus  of  23,000,000  lire  in 
1889  and  of  46,000,000  lire  in  1890.  The  commercial 
movement,  which  had  reached  the  maximum  in  1887  of 
2,610,000,000  lire  in  the  aggregate,  including  imports  and 
exports,  had  fallen  in  1888  to  2,066,000,000  lire  rising  again 
to  2,341,000,000  lire  in  1889  and  falling  to  2,214,000,000 
lire  in  1890.  It  may  be  well  to  add  that  these  differences 
were  due  for  the  greater  part  to  the  vicissitudes  of  the 
building  industry,  which  swelled  the  total  of  imports  in 
1885  to  1,460,000,000  lire,  to  1,458,000,000  lire  in  1886, 
and  to  1,605,000,000  lire  in  1887,  as  a  result  of  buying 
abroad  materials  needed  for  building.  In  1888  the  im- 
ports fell  from  1,605,000,000  lire  to  1,174,000,000  lire. 

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National    Monetary     Commission 

But  the  keenest  scrutinizers  of  the  labyrinth  of  the 
budget  did  not  indulge  in  any  vain  illusions ;  they  knew 
very  well  that  the  surplus  had  been  obtained  in  part  by 
disposing  of  treasury  money  and  by  various  expedients 
of  the  treasury,  while  the  increase  of  certain  returns  was 
derived  from  new  tortures  imposed  on  the  citizens  whose 
tax-paying  power  would  soon  be  exhausted. 

Indeed,  the  least  hopeful  forecasts  were  confirmed  by 
the  facts  in  the  following  year  in  which  reappeared  a  deficit 
of  48,000,000  lire,  and  the  commercial  movement  showed 
in  comparison  with  1889  a  loss  of  212,000,000  lire;  rentes 
at  Paris  went  down  from  95.50  to  87  and  exchange  rose 
from  100.65  to  103.80.  The  currency  remained  unchanged 
in  spite  of  the  decrease  of  100,000,000  lire  in  the  discounts 
of  the  banks,  because  the  treasury,  to  provide  for  its  needs, 
had  received  from  them  123,000,000  lire  of  statutory  loans. 

To  meet  the  deficit  ascertained  in  the  State  budget,  the 
minister  of  the  treasury,  Grimaldi,  a  clever  and  very  fluent 
talker,  but  without  sound  economic  and  financial  educa- 
tion, had  proposed  a  series  of  provisions  suitable  to  assure 
an  equalization,  among  which  was  another  bill  on  the 
banks  of  issue  which  would  have  given  the  treasury  an 
added  income  of  4,000,000  lire. 

At  that  point  came  the  already  mentioned  downfall  of 
the  ministry  presided  over  by  Francesco  Crispi,  which  was 
succeeded  by  the  Rudini  Ministry,  whose  minister  of  the 
treasury  was  Signor  Luzzatti.  Being  a  profound  analyst 
and  acute  observer  of  the  mysterious  Isis  of  the  budget, 
possessed  of  a  broad  knowledge  of  economics,  Signor 
Luzzatti,  who  enjoyed  deservedly  a  great  and  undisputed 
authority  in  Parliament,  seemed  to  be  the  man  best  fitted 


98 


The     Banks     of     Issue     in      Italy 

to  dominate  the  difficult  situation.  Therefore  the  belief 
that  he  would  be  able  to  think  out  the  plans  for  giving 
a  stable  reorganization  to  finance  and  currency  was  fully- 
justified . 

But  at  the  end  of  June  of  this  same  year  of  1891  there 
came  to  an  end  not  only  the  legal  currency  of  bank  notes, 
which,  prolonged  by  the  law  of  April  7,  1881  through  1883, 
had  necessarily,  by  the  needs  of  the  situation,  been  con- 
tinued from  year  to  year;  but  another  thing  came  to  an 
end  also — and  this  was  the  privilege  granted  to  the 
banks  of  issuing  notes.  But  while  on  the  one  hand  a 
favorable  occasion  presented  itself  for  taking  up  once  for 
all  the  weighty  problem  of  banking  reorganization,  which 
the  failure  of  all  the  schemes  presented  through  the  deter- 
mined opposition  they  had  encountered  had  now  caused 
to  be  regarded  in  the  light  of  one  of  those  electrical 
machines  that  are  ''dangerous  to  touch,"  on  the  other 
hand,  the  distress  of  the  times  and  the  many  duties  with 
which  the  new  minister  of  the  treasury  was  obliged  to 
occupy  himself,  made  it  impossible  to  apply  anything  but 
temporary  remedies.  In  fact,  on  May  28,  1891,  Signor 
IvUzzatti  presented  to  Parliament  a  bill  to  prolong  the 
privilege  of  issue  of  bank  notes  and  their  legal  currency 
to  the  end  of  December  31,  1892.  The  well-known  dis- 
orders of  the  circulation,  which  exceeded  by  more  than 
170,000,000  lire  the  limit  fixed  by  the  law,  demanded, 
likewise,  some  precaution  calculated  at  least  to  pre- 
vent it  from  being  still  further  inflated.  The  new  law 
stipulated  that  the  circulation  of  each  bank  should  not 
exceed  the  average  reached  in  the  year  1890,  except  when 
it  remained  less  than  four  times  the  paid-up  capital,  in 


99 


National     M  on  et  ar  y     C  ommis  s  to 


n 


which  case  it  could  reach  this  limit.  The  tax  on  circula- 
tion was  fixed  at  1.20  per  cent  besides  the  two-tenths — that 
is,  1 .44  per  cent.  For  the  excess  beyond  the  legal  limit,  or 
for  the  deficit  of  metallic  reserve,  which  was  to  cover  in  the 
proportion  of  one-third  both  the  bank  notes  and  sight 
liabilities,  the  bank  should  pay  a  tax  equal  to  double 
the  discount  rate. 

The  law  stipulated  that,  within  six  months  of  its  pro- 
mulgation, each  bank  should  present  to  the  minister  of 
agriculture,  industry,  and  commerce  a  detailed  statement 
of  the  situation  of  discount  operations  of  diflftcult  and  un- 
ready realization  or  overdue  and  unpaid,  and  of  real  estate 
undertakings  and  credit  of  all  kinds  secured  by  mortgage 
guaranty.  The  limit  of  six  months  was  extended  by  the 
committee  of  the  Chamber  to  one  year;  but  the  ministry 
did  not  consent  to  the  modification,  so  that  the  shorter 
limit  of  six  months  remained  which  the  ministry  had  fixed, 
evidently  with  the  determination  of  knowing  without  delay 
the  situation  of  the  banks  of  issue,  in  order  to  have  stand- 
ards to  refer  to  in  framing  an  organic  law. 

Each  bank  was  to  accept  in  payment  the  bank  notes 
of  the  others.  The  Government  reserved  the  right 
to  establish  within  two  months,  after  conferring  with 
directors  of  banks,  the  rules  to  regulate  the  mutual  re- 
demption of  the  respective  bank  notes. 

On  the  lump  sum  of  171,683,152.24  lire,  which  was  the 
maximum  amount  of  the  loans  the  banks  were  to  make  to 
the  treasury ,  including  a  loan  extraordinary  of  68,183,152.24 
lire,  the  banks  were  to  receive  2%  per  cent  interest  and 
pay  the  circulation  tax  of  i  per  cent. 


100 


The      Banks     of     Issue     in      Italy 

The  regulations  above  mentioned,  and  especially  the 
one  which  obliged  the  banks  to  present  within  six  months 
a  statement  of  the  operations  not  paid  on  maturity  or  of 
unready  realization  and  such  as  were  secured  by  mortgages, 
were  intended  to  check  the  activity  of  the  banks  and  to 
reveal  their  condition.  This  law,  framed  under  pressing 
necessity,  was,  however,  the  prelude  to  a  more  organic  law 
that  the  Government  promised  to  present  in  the  interval 
between  July  i,  1891  and  December  31,  1892,  the  term  of 
the  prolongation  of  the  privilege  granted  to  the  banks  to 
issue  bank  notes  and  of  the  legal  currency  of  these  notes, 
as  indeed  the  same  ministers  had  declared  in  their  report 
on  the  bill. 

In  conformity  with  the  promise  made,  the  ministry 
presented  on  April  i,  1892  an  organic  bill  of  which  it 
will  be  well  to  give  an  outline,  because  it  showed  how,  in 
spite  of  the  well-known  inferiority  of  the  plurality  of 
banks,  in  spite  of  the  proof  of  the  grave  losses  it  had 
caused  to  Italy,  it  was  not  possible  to  reach  the  unity  of 
issue  notwithstanding  that,  as  it  appeared  through  the 
tendencies  of  the  bill,  the  Government  seemed  to  be  in 
principle  favorable  to  it. 

But  before  proceeding  to  the  examination  of  the  bank- 
ing bill,  it  will  be  well  to  consider  an  episode  which  gave 
rise  later  to  bitter  censure  against  the  minister  of  the 
treasury  and  the  minister  of  agriculture,  industry,  and 
commerce.  As  we  have  seen,  an  article  of  the  act  of 
June  30,  1 89 1,  authorized  these  ministers  to  establish 
within  two  months,  by  royal  decree,  the  rules  relating  to 
the  mutual  redemption  of  notes  among  the  banks  of 
issue,  after  conferring  with  the  various  general  directors. 


lOI 


National     Monetary     Commission 

Now,  it  happened  that  at  the  expiration  of  the  estabHshed 
term  the  ministry  announced  the  intention  of  pubHshing 
the  royal  decree  by  which  it  was  stipulated  that  the  obliga- 
tion of  redemption  of  bank  notes  should  be  limited  to  the 
total  of  the  notes  issued  by  the  creditor  bank  possessed 
by  the  debtor  bank.  The  creditor  bank,  therefore,  was 
to  take  over  any  excess  and  employ  it  in  its  own  opera- 
tions; all  this  in  accordance  with  the  established  agree- 
ments. 

The  director  general  of  the  Banca  Nazionale  objected 
that  according  to  the  agreements  it  had  been  stipulated 
that  the  experiment  was  to  be  made  for  a  sufficient  time  to 
make  it  possible  to  see  if,  as  he  maintained,  the  proposed 
method  would  give  rise  to  inconveniences.  But,  since  the 
Banca  Romana,  supported  by  other  banks  insisted, 
declaring  again  that  the  obligation  of  redemption  of  its 
notes  would  reduce  it  to  the  condition  of  suspending 
operations,  the  decree  was  published. 

After  the  failure  of  the  Banca  Romana  in  1893,  with 
the  revelation  of  its  very  grave  irregularities,  bitter  dis- 
cussions aroused  as  to  its  relations  with  the  Government. 
Politicians  and  the  press,  in  trying  to  place  the  responsi- 
bility, called  to  mind  the  decree  of  1891  on  the  mutual 
redemption  of  notes  and  reproved  the  ministers  who  had 
complied  with  the  urgent  request  of  the  Banca  Romana, 
whose  bad  situation  they  must  have  known.  Those  who 
expressed  this  opinion  had  evidently  forgotten  that,  more 
than  the  ministers  who  made  the  proposal,  the  committee 
of  the  Chamber,  the  faithful  interpreter  as  it  considered 
and  called  itself  of  the  opinion  of  the  Chamber,  had  been 
favorable  to  the  lightening  of  the  obligation  of  the  mutual 


The      Banks      of     Issue      in      Italy 

redemption  of  notes.  The  spokesman  of  the  committee  of 
the  Chamber  had  complained  that  in  the  report  on  the 
bill  for  the  abolition  of  forced  cm-rency,  similar  relief  had 
been  planned  and  promised  in  the  matter  of  the  mutual 
redemption  of  notes,  and  said:  "  This  promise  still  remains 
unfulfilled,  and  the  committee  is  distressed  because  the 
Government  has  not  seized  the  opportunity,  in  presenting 
this  bill,  to  propose  frankly  the  solution  of  the  problem, 
lyacking  this  the  committee  itself  would  not  have  hesitated 
to  frame  a  definite  resolution  if  the  idea  had  not  pre- 
vailed, shared  also  by  the  proposing  ministers  who  had 
come  into  its  midst,  that  it  would  still  be  better  to  try  a 
solution  based  on  an  agreement  among  the  banks." 

"In  every  way  the  committee  approves  the  standards 
set  forth  in  the  legislative  provisions  to  that  effect  pro- 
posed by  the  Government ;  and  therefore  it  accepts  arti- 
cle 4  of  the  ministerial  act,  proposing  furthermore  that  the 
royal  decree  shall  be  issued  within  two  months  from  the 
publication  of  the  law,  and  this  in  order  to  assure  attain- 
ment of  the  desired  end,  and  to  prevent  further  delays 
which  the  past  has  given  reason  to  fear." 

Since  the  Banca  Romana  was  relieved,  first  through  the 
Government's  interposition  and  the  considerateness  of 
the  Banca  Nazionale,  then  by  laws  and  royal  decree,  of 
the  obligation  of  redeeming  its  notes,  and  since  this  relief 
was  the  cause  of  its  being  able  to  violate  the  law  anew 
more  freely  and  more  recklessly,  until  it  reduced  itself  to 
a  disastrous  condition,  the  inquiry  into  the  responsibility 
on  this  most  important  point  appears  fully  justified. 
Now,  from  the  words  of  the  spokesman  of  the  committee 
quoted  here,  it  is  seen  very  clearly  that  the  ministry  had 


103 


National     Monetary     Commission 

not,  in  its  somewhat  hesitating  procedure,  entirely  satis- 
fied the  desire  of  the  committee  and  the  Chamber;  the 
committee  was  distressed  because  the  ministry  had  not 
dared  to  solve  the  problem  more  quickly;  to  be  more 
specific,  it  wished  to  insert  a  modification,  approved  by 
the  Chamber,  by  which  the  Government  was  obliged  to 
present  the  royal  decree  within  two  months  of  the  publi- 
cation of  the  law.  All  this  confirms,  in  an  eloquent  way, 
all  that  we  have  said  about  the  surrounding  conditions 
of  the  Italian  Parliament  with  regard  to  the  banking 
problem  in  general  and  the  relations  among  the  various 
banks  of  issue  in  particular.  The  solicitude  of  the  Gov- 
ernment for  the  minor  banks,  which  has  been  pointed 
out  in  connection  with  the  bill  presented  in  1888,  was 
nothing  but  acquiescence  in  the  sentiment  prevailing,  for 
reasons  and  considerations  of  a  regional  nature,  in  the 
Italian  Parliament. 

And,  in  particular,  as  for  the  accusation  made  against 
Signor  Luzzatti  of  not  having  opposed  the  pubhcation 
of  the  decree  which  effectively  abolished  the  mutual 
redemption  of  notes,  when  he  certainly  must  have  known 
the  ruinous  conditions  of  the  Banca  Romana,  it  must  be 
stated  that  he  was  absolutely  ignorant  of  those  condi- 
tions. Nevertheless,  Signor  Luzzatti,  not  being  per- 
fectly tranquil  about  it,  had  intended  to  arrange  for  an 
unexpected  examination  of  the  Banca  Romana  before 
presenting  the  bill  of  1891  and  consenting  to  the  publica- 
tion of  the  decree  on  the  mutual  redemption  of  bank 
notes ;  and  he  had  mentioned  this  plan  of  his  to  the  general 
director  of  the  Banca  Nazionale  and  the  general  director 


104 


The      Banks      of     Issue      in      Italy 

of  the  treasury,  Signer  Carlo  Cantoni;  these  men,  of 
one  accord  and  insistently,  advised  the  minister  against 
making  the  inspection.  Signor  Grillo,  supposed  to  be 
such  a  bitter  enemy  of  the  Banca  Romana  and  its  gov- 
ernor, declared  to  Signor  Luzzatti  that  it  was  his 
firm  conviction  that  the  Banca  Romana  was  in  perfect 
order;  and  judging  its  governor  too  shrewd  to  have 
fallen  again  into  past  errors,  concluded  by  advising  the 
minister  against  making  a  fruitless  inspection  which  would 
"raise  an  uproar  in  the  camp"  and  disturb  the  market, 
which  was  already  getting  out  of  control.  Besides,  it  is 
well  to  call  to  mind  that,  as  it  was  ascertained  in  the  year 
1893  by  the  parliamentary  committee  of  inquiry  on  the 
banks  of  issue,  the  minister  of  agriculture,  industry,  and 
commerce  had  also  maintained  that  an  unexpected  exami- 
nation of  the  Banca  Romana  would  be  neither  useful  nor 
opportune. 

In  the  meantime  the  Government  had  published  the 
decree  that  in  execution  of  the  law  recorded  June  30, 
1 89 1,  fixed  in  the  following  figures  the  maximum  amount 
of  notes  the  banks  could  keep  in  circulation  at  the  ratio 
of  four  times  the  paid-up  capital  for  banks  that  have 
shareholders,  and  of  four  times  the  free  capital  possessed 
by  the  two  banks  at  Naples  and  Sicily: 

Lire. 

Banca  Nazionale  nel  Regno 600,  000,  000 

Banco  di  Napoli 242,  160,  600 

Banca  Nazionale  Tuscana 84,  299,  900 

Banca  Romana 70,  019,  500 

Banco  di  Sicilia 48,  000,  000 

Banca  Toscana  di  Credito 20,  000,  000 

1,064,  480,  000 


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National    Monetary     Commission 

an  excess  of  308,750,000  lire  beyond  the  amount  granted 
by  the  law  of  April  30,  1874,  an  excess  which  thus  became 
legalized. 

This  situtation,  however,  being  considered  abnormal, 
the  Government,  as  we  have  seen,  had  decided  upon 
presenting  an  organic  bill  on  the  institutions  of  issue. 
Meanwhile  the  abides  of  the  law  of  June  30,  1 891,  by  the 
penalties  to  be  applied  in  case  of  an  excess  of  circulation, 
and  by  the  necessity  of  the  metallic  reserve  of  one-third 
as  a  cover  for  the  circulation,  had  helped  slightly  to 
improve  the  situation. 

From  June  30, 1891  to  February  29,  1892,  the  circulation 
was  diminished  from  1,139,000,000  lire  to  1,030,000,000 
lire;  the  reserve  was  increased  from  425,000,000  lire  to 
435,000,000  lire. 

The  bill  for  the  regulation  of  the  currency,  presented 
by  the  Government  April  i,  1892,  deserves  to  be  examined 
specially,  as  we  have  said,  in  the  part  which  reveals  its 
intimate  beUef  in  the  superiority  of  the  unity  of  issue. 
This  end  the  Government  did  not,  however,  expect  to 
attain,  because,  as  it  declared  in  the  learned  report  which 
preceded  it,  it  intended  to  * '  insure  more  fully  the  observ- 
ance of  the  articles  of  the  law,  to  reenforce  notably  the 
banking  regulations,  and  to  make  up  for  the  lack  of 
unity  of  direction  of  the  institutions,  not  wishing  to 
organize  a  big  institution  on  the  ruins  of  these  minor 
ones  as  has  been  done  elsewhere,  in  order  not  to  offend 
public  interests,  customs,  and  venerable  traditions." 

The  bill  proposed  the  forming  of  an  association  between 
the  banks  of  issue  which  should  serve  to  establish  and 
maintain  constant  relations  among  them,  and  in  certain 


106 


The     Banks     of     Issue     in     Italy 

matters,  especially  in  fixing  the  discount  rate,  to  give 
a  unity  of  direction  to  their  action.  To  the  association 
was  also  intrusted,  under  the  surveillance  of  the  Gov- 
ernment, whatever  concerned  the  manufacture  of  bank 
notes  and  their  distribution  among  the  banks,  and  like- 
wise the  treasury  service  of  the  State. 

The  bill  contained  various  other  wise  provisions  which 
it  is  not  necessary  to  mention,  because,  with  the  unluc'ky 
fate  that  had  always  pursued  the  numerous  bills  for 
Italian  banking  reform,  this  one  also  fell  through  with 
the  downfall  of  the  Rudini  Ministry,  whose  minister  of 
the  treasury,  as  we  have  said,  was  Signor  Luzzatti. 

But,  for  the  reason  stated,  it  seemed  useful  to  mention 
the  proposal  relating  to  instituting  the  association, 
because  it  represents  almost  a  middle  term  between  the 
unity  of  issue,  the  value  of  which  was  henceforth  recog- 
nized, and  pluraHty,  which  ''venerable  customs  and  tradi- 
tions made  it  impossible  to  abolish." 


107 


Chapter  VIII. 

THE  FAILURE  OF  THE  BANCA  ROMANA  AND  THE   CRISIS  OF 

1893- 

To  the  Rudini  Ministry  succeeded  the  ministry  presided 
over  by  Signor  Giovanni  GioUtti,  whose  minister  of  agri- 
culture, industry,  and  commerce  was  Signor  Pietro  Lacava, 
and  of  the  treasury  was  Signor  Bernardino  Grimaldi,  who 
had  already  held  the  same  office  in  preceding  ministries. 
These  were  the  two  ministers  to  whom,  in  conformity  with 
the  law  then  in  force,  was  entrusted  the  vigilance  over  the 
banks  of  issue  and  whose  concern  it  was  to  propose  the 
modifications  of  the  banking  law. 

But  before  the  ministry  could  reduce  its  studies  to  con- 
crete terms  and  present  its  proposals  to  Parliament,  pub- 
lic opinion  began  to  show  itself  anxious  and  uneasy  about 
the  situation  of  the  banks  of  issue  in  general,  and  that 
of  the  Banca  Romana  in  particular.  Having  been  freed 
from  all  further  check  or  restraint  by  the  royal  decree 
of  August  I,  1 89 1,  which  absolved  it  from  the  obligation 
of  redeeming  its  notes,  the  Banca  Romana,  which  was 
already  in  a  disastrous  state,  went  headlong  on  the  road 
to  ruin.  Its  circulation,  which  amounted  to  72,000,000 
lire  in  1891,  rose  to  112,000,000  lire  in  1892  and  to  137,- 
000,000  lire  in  January,  1893,  going  down  to  129,000,000 
lire  on  July  31  of  that  year.  The  bank,  in  order  to  main- 
tain in  circulation  the  notes  which  the  public  rejected,  had 
tried  to  open  an  office  at  Milan  and  branches  in  other 
cities  of  upper  Italy,  but  without  any  success.  The  notes 
of  the  Banca  Romana,  which  had  not  succeeded  in  pene- 


108 


The     Banks     of     Issue     in     Italy 

trating  to  the  rest  of  the  Kingdom  were  flooding  the 
Roman  Province. 

The  situation  of  that  bank  gave  rise  to  discussion  in 
the  Itahan  press,  and  abroad  also  a  few  cries  of  alarm 
were  uttered.  It  was  supposed  that  Minister  Grimaldi, 
who  was  bound  by  ties  of  friendship  to  the  governor  of 
the  Banca  Romana,  would  propose  not  to  modify  the 
banking  system,  and  to  make  this  bank  the  concessions 
that  it  was  asking  for,  by  increasing  its  capital  and  priv- 
ilege of  issue.  It  was  then  that  someone  advised  Minister 
Grimaldi  to  reject  every  proposal  of  this  kind,  and  to 
take  steps,  instead,  for  liquidating  the  Banca  Romana 
and  merging  it  with  another  bank.  The  minister  was 
warned  in  a  friendly  way  that  if  he  intended  to  continue 
the  privilege  of  issue  for  a  bank  which  was  in  a  disastrous 
financial  and  moral  condition,  the  whole  report  of  the 
inspection  made  of  the  Banca  Romana  in  1889  would  be 
brought  to  the  knowledge  of  the  public.  This  report 
Minister  Miceli  had  not  even  communicated  to  the  council 
of  ministers,  before  which  he  had  confined  himself  to  say- 
ing that  he  had  provided  for  eliminating  a  few  unimpor- 
tant irregularities,,  as  a  result  of  the  inspection  of  the 
bank. 

But  Grimaldi,  who  had  meantime  determined  to  pre- 
sent a  bill  for  continuing  the  existing  state  of  things  for 
six  years,  not  only  paid  no  attention  to  the  warning,  but 
continued,  in  sheer  bravado,  to  the  point  of  supporting  the 
governor  of  the  Banca  Romana  in  the  ministerial  council 
and  obtaining  his  nomination  for  senator.  This  was  the 
spark  that  started  the  conflagration.  Maffeo  Pantaleoni, 
the  illustrious  economist  who  is  an  honor  to  Italy,  and 


109 


National     Monetary     Commission 

who  had  sent  to  Minister  Grimaldi,  by  a  common  friend, 
the  warning  mentioned  above,  could  no  longer  restrain 
himself  in  the  face  of  what  he  considered  a  challenge. 
Being  in  possession  of  a  copy  of  the  report  on  the  inspec- 
tion of  the  Banca  Romana,  he  selected  two  deputies 
of  opposing  parties  in  the  Chamber,  Signor  Colajanni 
from  the  Left  and  Signor  Gavazzi  from  the  Right,  and, 
advising  them  of  the  very  damaging  facts  charged  against 
the  Banca  Romana,  persuaded  them  to  carry  the  ques- 
tion to  the  Chamber;  this  duty,  in  the  interests  of  pub- 
lic credit  and  morality,  they  accepted  willingly.  The 
impression  produced  in  the  Chamber  by  the  revelations 
of  the  two  deputies  was  enormous;  it  was  a  distressing 
impression  because  of  its  moral  seriousness  and  alarming 
because  of  the  revelation  of  a  most  disastrous  state  of 
things,  which  would  cause  serious  injury  to  Italian 
credit. 

Signor  Giolitti,  president  of  the  ministerial  council,  who 
in  the  most  stormy  moments  of  his  long  political  career 
has  fortunately  been  assisted  and  supported  by  a  calm 
and  well-balanced  mind,  did  not  wish  in  the  midst  of  the 
furious  outburst  of  political  passions  excited  by  the  revela- 
tion of  the  sad  state  of  the  Banca  Romana,  to  grant  the 
proposal  of  nominating  a  parliamentary  committee  of  in- 
quiry, and  advised  instead  proceeding  first  of  all  and  im- 
mediately to  the  nomination  of  an  administrative  com- 
mittee for  the  purpose  of  requiring  an  inspection  of  all  the 
banks  of  issue,  in  order  to  find  out  their  condition.  This  did 
not  succeed,  however,  in  quieting  the  excitement;  because 
even  if  the  announcement  of  the  nomination  of  that  com- 
mittee was    at  once  sufficient    to  satisfy  the  legitimate 


The     Banks     of     Issue     in     Italy 

desire  for  enlightenment  of  all  the  men  who  were  work- 
ing quietly  for  the  public  good,  it  was  not  enough  for 
the  politicians,  who  had  suddenly  scented,  in  the  sad 
rottenness  of  the  Banca  Romana,  a  most  excellent  excuse 
for  giving  free  play  to  the  cannibal  instinct  that  distin- 
guishes them  from  the  rest  of  the  human  race.  How- 
ever that  may  be,  it  was  quite  impossible  to  prevent 
the  opposition  from  choosing  the  propitious  occasion  of 
the  very  grievous  disorder  that  reigned  in  Parliament  to 
try  to  bring  about  the  downfall  of  the  ministry. 

Without  entering  now  into  the  political  side  of  the  situa- 
tion, it  should  be  stated  that  the  ministry,  abandoning 
the  scheme  for  prolonging  the  existing  state  of  things  for 
six  years,  suddenly  set  to  work  energetically,  as  the  grav- 
ity and  urgency  of  the  situation  demanded,  to  provide  for 
bestowing  better  regulations  upon  the  banking  system; 
for  this  there  was  no  need  to  await  the  final  result  of  the 
inspection  of  the  institutions  of  issue.  What  was  already 
known  was  sufficient  to  give  a  clear,  if  not  complete,  idea 
of  the  situation  of  the  banks  and  the  currency;  in  the 
gravity  of  this  were  seen  reflected  all  the  effects  of  the 
errors  committed,  and  principally  of  that  greatest  error 
of  having  allowed  to  subsist  for  so  many  years  a  hybrid 
system  of  banking  plurahty  in  a  country  which,  by  its 
peculiar  conditions,  needed  more  than  any  other  the 
valuable  support  and  the  vaUd,  efficacious  working  of  a 
single  strong  and  respected  institution  of  issue. 

The  plurality  of  banks  had  excited  rivalry  between  the 
institutions,  and,  in  the  midst  of  the  struggle,  they  had 
lost  the  sense  of  prudence  and  measure;  instead  of  being 
the  supreme  regulators  of  the  circulation  and  credit,  they 

39781°— II 8  III 


National     Monetary     Commission 

had  become  facile  distributors  of  bank  notes,  encouraging 
all  sorts  of  irregular  and  immoderate  undertakings.  The 
abuse  of  credit  resulting  from  the  conduct  of  the 
Itahan  banks  of  issue  had  in  fact  promoted  many  un- 
dertakings of  a  speculative  nature,  without  foundations, 
and  sometim.es  without  honesty;  it  had  piled  up  an  edi- 
fice, which,  superficially  considered,  might  give  the  illusion 
of  solidity  and  prosperity,  but  which  was  doomed  instead 
to  fall  at  the  first  touch,  at  the  first  breath  of  wind.  The 
bank  note  considered  as  capital  had  been  devoted  to  all 
kinds  of  uses,  even  those  least  adapted  to  its  nature  and 
involving  the  grea.test  risk. 

And  yet,  if  we  consider  that  no  undertaking  succeeds, 
especially  in  our  own  time,  unless  it  is  moved  and  ani- 
mated by  the  violent  puffing  of  speculation;  if  we  con- 
sider that  even  in  countries  more  solidly  and  longer 
organized,  and  more  seasoned  to  economic  struggles,  the 
same  thing  has  happened  that  happened  in  Italy,  it  would 
appear  that,  although  deploring  the  moral  disorders  and 
the  great  waste  of  economic  energy,  some  sort  of  expla- 
nation ought  to  be  found,  which,  if  it  does  not  justify 
the  work  of  all  those  who,  from  top  to  bottom,  were  the 
cause  of  grave  and  lengthy  banking  crises,  may  at  least 
lessen  their  responsibility  (leaving  aside,  of  course,  those 
who  were  dishonest) ;  for  while  the  course  pursued  by  these 
men  resulted  in  harm  on  the  one  hand,  on  the  other  hand 
somiething  good  remains.  There  remains  the  building 
renovation  of  the  capital  of  the  Kingdom;  there  rem^ain 
the  magnificent  works  of  the  sanitation  of  Naples;  there 
remains  the  network  of  railroads,  and  the  whole  mass 
of   public   works   completed   in  a  quarter  of   a  century. 


The      Banks      of     Issue      in      Italy 

And  there  remains  above  all  a  notable  inheritance  of 
experience  which  offers  sufficient  guaranty  that  Italy- 
will  proceed  from  now  on  in  the  right  path  in  all  that 
concerns  the  government  regulation  of  banks  of  issue 
and  paper  currency. 

The  situation  of  the  banks  had  also  made  plain  the 
disadvantages  resulting  from  the  intervention  of  the 
Government  and  politics  in  general  in  banking  affairs, 
even  if  this  intervention  might  seem  justified  by  praise- 
worthy intentions  and  the  desire  for  the  public  good. 

In  this  regard  bitter  were  the  criticisms  directed  against 
the  men  in  the  Government  who  had  interfered  in 
banking  matters  and  against  the  administrations  of 
banks  which  had  not  resisted  their  pressure  and  had 
consented  to  give  subsidies,  useless  for  the  building 
industry  and  injurious  to  the  banks.  The  same  thing 
happened  now  that  had  happened  at  the  time  of  the 
abolition  of  forced  currency.  All  those  who  in  Parlia- 
ment and  the  press  had  not  only  approved  the  subsidies, 
but  insistently  demanded  them,  now  became  the  most 
violent  accusers  of  the  Government  and  the  banks. 

Nor  was  this  change  of  opinion  confined  to  those  who 
had  neither  discernment,  ability,  nor  learning  to  ex- 
press an  intelligent  opinion  on  the  question,  since  it  was 
evident  also  in  men  who  because  of  their  education 
and  social  and  political  position  were  rightly  considered 
capable  of  expressing  thoughtful  and  weighty  opinions. 
An  influential  member  of  Parliament  at  the  time  of  the 
subsidizing  of  the  building  industry  wrote:  "The  inter- 
vention of  the  Banca  Nazionale  was  not  only  legiti- 
mate  and    praiseworthy,    but    right.     This    is    the    true 


"3 


National     Monetary     Commission 

function  of  the  great  institutions  of  issue— to  collect 
and  concentrate  their  own  resources  in  order  to  be  able 
to  support  credit  in  difficult  moments."  He  then 
attacked  bitterly  the  basis  of  the  banking  project  of 
the  Government,  because  he  saw  in  it  the  "continuation 
of  the  baneful  system  of  banking  subsidies,  which,  begin- 
ning with  the  Esquiline  undertaking  and  followed  by 
the  Banca  Tiberina,  was  the  cause  of  Italy's  greatest 
calamities." 

Verv  rightly  the  general  director  of  the  Banca  Na- 
zionale  in  the  report  to  the  shareholders  for  the  year 
1893,  the  last  year  of  the  existence  of  the  bank,  could 
assert  in  summing  up  the  vicissitudes  of  the  institution: 
*'  It  has  often  been  said  that  the  bank  should  have  looked 
on  with  indifference  at  the  disasters  that  were  piling 
up  around  it,  but  I  have  the  right  to  record  that  these 
tardy  reproofs  came  to  us  principally  from  the  very 
people  who  had  most  loudly  requested  or  demanded 
the  aid  and  help  of  the  bank." 

Another  severe  lesson  coming  from  the  discovery  of 
the  conditions  of  the  Italian  banks  was  the  admonition 
to  consider  that  the  first  and  strongest  guaranty  of  bank 
notes  in  circulation  is  metallic  money. 


114 


Chapter  IX. 

EXAMINATION  OF  THE   BANKING  ACT  OF  AUGUST   TO,    1 893. 

Given  the  three  points  stated  above — that  is,  the  disad- 
vantages of  the  plurahty  of  banks  of  issue,  the  interven- 
tion of  the  Government  and  pohtics  in  banking  affairs, 
and  the  necessity  of  large  metaUic  reserves  as  a  guar- 
anty for  paper  currency — it  would  seem  that  the  course 
to  be  followed  was  clearly  indicated  by  the  examination 
of  the  situation  and  the  causes  that  had  created  it.  The 
logical  solution  of  the  banking  problem,  unsolved  for 
some  twenty  years,  which  was  indicated  and  almost 
demanded  by  experience  and  the  situation,  seemed  to 
consist  necessarily  in  the  organization  of  a  single  great 
bank  of  issue,  protected  by  precise  legal  enactment  from 
all  political  influence  and  provided  with  a  large  me- 
tallic reserve  for  the  greater  guaranty  of  the  notes  in 
circulation. 

With  regard  to  the  first  point,  the  solution  was  for- 
warded by  an  agreement  promptly  arranged  between  the 
Banca  Nazionale  nel  Regno  and  the  two  Tuscan  banks. 
By  this,  leaving  out  the  Banca  Romana,  the  banks  of 
issue,  organized  under  the  form  of  a  joint  stock  company, 
were  reduced  from  four  to  one.  There  remained  the  ar- 
ranging for  a  fusion  of  the  Bank  of  Naples  and  that  of 
Sicily,  or  for  their  transformation  into  local  institutions  of 
agricultural  or  land  credit,  of  which  southern  Italy  was  in 
great  need ;  but  no  attempt  of  this  kind  was  possible.  This 
is  certainly  a  point  in  the  history  of  Italian  banking  that 
will  doubtless  seem  inexplicable  to  one  who  examines  it 

"5 


National    Monetai^y     Commission 

at  a  distance  in  time,  in  and  by  itself,  independently  of 
the  surroundings  and  the  conditions  of  the  moment. 

As  we  have  seen  from  the  brief  historic  note  on  the 
origins  of  the  two  banks  of  Naples  and  Sicily,  they  were 
considered  institutions  of  southern  Italy,  for  which  the 
population  of  the  south  cherished  the  kind  of  affection 
that  is  inspired  by  national  glory.  To  make  an  attack 
upon  the  integrity  of  these  two  banks  was  to 
offend  the  local  sentiment  of  that  population  and  like- 
wise arouse  against  the  ministry  the  violent  opposition 
of  the  Neapolitan  and  Sicilian  deputies,  united  and  firm 
in  demanding  that  the  two  banks  be  preserved  with 
absolute  autonomy  and  complete  independence.  Among 
the  few  who  were  an  exception  to  the  rule  V\re  should 
record,  by  way  of  praise.  Deputy  Saporito,  a  Sicilian, 
who  in  a  speech  to  the  electors  had  the  courage  to  pro- 
claim the  necessity  of  creating  in  Italy  a  single  great 
bank  of  issue. 

If  we  consider  what  were  then  the  surrounding  par- 
liamentary conditions,  agitated  by  the  raging  of  violent 
passions,  and  what  nmst  have  been  in  consequence  the 
position  of  the  ministry,  it  will  be  easy  to  understand 
how  the  ministry  could  not  even  distantly  hope  to  be  able 
to  win  the  great  battle  in  favor  of  a  single  bank,  since  it 
would  have  been  inexorably  overthrown  if  it  had  even 
expressed  such  an  intention. 

The  Government,  therefore,  was  obliged  to  limit  itself 
to  proposing  the  ratification  of  the  fusion  of  the  three 
banks,  the  Banca  Nazionale  nel  Regno,  the  Banca  Na- 
zionale  Toscana,  and  the  Banca  Toscana  di  Credito,  and 
the  creation  of  the  Bank  of  Italy ;    to  continue  the  privi- 


The      Banks      of     Issue      in      Italy 

lege  of  issue  for  the  banks  of  Naples  and  Sicily  and  erect 
on  this  foundation  the  new  legislative  structure  on  the 
currency. 

Before  proceeding  to  the  examination  of  the  articles 
of  the  new  law,  we  should  state  that  very  violent  opposi- 
tion was  raised  against  the  plan  of  the  Government,  in 
so  far  as  it  tended  to  keep  in  operation  the  existing  insti- 
tutions, some  merged,  others  autonomous.  Deputy  Sid- 
ney Sonnino,  one  of  the  raost  cultivated  and  influential 
members  of  the  Italian  Parliament,  now  president  of 
the  ministerial  council,  published  a  note  in  which,  after 
making  a  careful  examination  of  the  conditions  of  the  three 
banks  which  were  to  constitute  the  Bank  of  Italy,  he 
showed  that  this  institution  could  not  be  organized  on  a 
successful  basis,  and  in  concluding  his  study  expressed  the 
opinion  that  the  better  plan  would  be  to  liquidate  the 
six  banks  of  issue  and  create  out  of  them  a  single  entirely 
new  bank.  Although  the  opinion  of  Signor  Sonnino 
on  the  situation,  and  especially  on  the  conditions  in 
which  the  projected  Bank  of  Italy  would  be  placed,  was 
considered  exceedingly  gloomy,  the  facts  were  destined 
to  show  that  he  had  been,  instead,  too  optimistic.  In- 
deed, whereas  he  had  calculated  that  the  Bank  of  Italy, 
provided  it  did  not  suffer  other  losses,  would  not  be  able 
to  give  the  shareholders  a  dividend  of  more  than  4.50 
per  cent  on  the  paid-up  capital,  the  dividend  was  15  lire 
for  the  first  year  of  1894,  17  lire  in  1895,  and  in  various 
succeeding  years,  until  1905,  18  lire,  equal  to  about  2}^ 
per  cent.  This  is  sufficient  proof  that  the  true  situation 
of  the  Italian  banks  of  issue  had  not  yet  been  grasped 
in  all  its  gravity,  even  by  the  keenest  inquirers.     How- 


117 


National     Monetary     Commission 

ever,  the  calculation  made  by  Signer  Sonnino  made  a 
great  impression  because  it  signified  that  the  shares  of  the 
Banca  Nazionale,  at  i,ooo  lire  nominally,  with  750  lire 
paid  up,  which  had  been  quoted  at  about  1,285  lire, 
would  have  to  decline  to  about  1,000  lire.  Even  this 
calculation  was  extravagantly  optimistic,  since  the  shares 
of  the  new  Bank  of  Italy  from  a  nominal  value  of  i  ,000 
lire  with  700  lire  paid  up,  declined  in  December,  1894,  to 
a  minimum  quotation  of  750  lire. 

Two  very  distinct  programmes  mean'vvhile  were  under 
discussion.  First,  the  plan  supported  by  Signor  Sonnino, 
in  which  few  others  acquiesced,  consisting  as  we  have 
seen,  in  the  liquidation  of  all  the  existing  banks  and  the 
building  from  the  foundations  of  a  new  banking  regime 
with  a  unified  system;  second,  the  plan  to  which  adhered 
both  the  partisans  of  a  unified  system  and  the  partisans 
of  a  system  of  plurality,  which  took  definite  shape  in  the 
preservation  of  the  three  banks,  subjected  to  a  rigid  dis- 
cipline which  would  make  possible  the  gradual  liquidation 
of  the  operations  not  in  liquid  form  or  otherwise  not  suit- 
able for  banks  authorized  to  issue  notes. 

If  the  proscribed  programme  of  Signor  Sonnino  did 
not,  with  few  exceptions,  have  the  support  of  the  par- 
tisans of  unity,  it  was  because  it  seemed  extremely  dan- 
gerous to  decree  the  Hquidation  of  the  six  banks  of  issue 
during  the  very  serious  crisis  from  which  Italy  was  suffer- 
ing. It  seemed  to  the  majority  that  the  better  plan  would 
be  to  proceed  cautiously  and  by  degrees,  beginning  by 
restoring  a  little  order  to  the  great  banking  chaos,  and  by 
providing,  through  rigid  and  severe  rules,  to  prepare  the 
way  for  the  gradual  reform  of  the  situation,  and  prevent 

X18 


The      Banks      of     Issue      in      Italy 

the  repetition  of  past  errors.  Besides,  the  programme  of 
Signor  Sonnino  could  not  in  any  case  have  been  approved, 
because  of  the  very  decided  opposition  of  the  southern 
deputies  who,  for  the  reasons  stated,  wished  the  two 
banks  to  be  continued. 

It  was  for  this  reason  that  in  spite  of  the  hvely  opposi- 
tion manifested  in  the  long  and  not  always  calm  discussion, 
the  president  of  the  ministerial  council,  vSignor  Giolitti, 
gave  proof  of  extraordinary  energy  and  great  competency, 
and  succeeded  in  getting  the  new  banking  law  passed. 
This  law  at  the  very  difficult  moment  in  which  it 
was  discussed  and  ratified,  because  of  the  violent  dissen- 
sion that  raged  in  the  Chamber,  and  because  of  the 
abnormal  conditions  of  the  banks,  could  neither  be  made 
perfect  nor  final. 

It  was  necessarily  a  transitional  law,  of  a  kind  to  make 
possible  the  understanding  of  the  programme  for  bringing 
about  the  gradual  reform  of  the  currency  and  the  banks 
of  issue,  a  plan  which  had  been  judged  more  practically 
attainable. 

The  new  law,  promulgated  under  the  date  of  August  lo, 
1893,  authorized  the  fusion  of  the  Banca  Nazionale  nel 
Regno  with  the  Banca  Nazionale  Toscana  and  the  Banca 
Toscana  di  Credito,  and  the  creation  of  a  new  bank  which 
assumed  the  title  of  the  "  Bank  of  Italy."  The  capital  was 
placed  at  the  sum  of  300,000,000  lire,  divided  into  300,000 
registered  shares  of  1,000  lire  each,  with  payment  of  700 
lire.  The  paid-up  capital  was  thus  raised  from  1 76,000,000 
to  210,000,000,  and  the  shares  were  distributed  among  the 
shareholders  of  the  three  banks  as  follows:  To  the  share- 
holders of  the  Banca  Nazionale  214,289  shares  in  exchange 


119 


National     Monetary     Commission 

for  the  old  ones;  to  the  same  shareholders,  at  option, 
48,718  shares;  to  the  shareholders  of  the  Banca  Nazionale 
Toscana  30,000  shares;  to  the  shareholders  of  the  Banca 
Toscana  di  Credito  8,000  shares. 

The  maximum  amount  of  notes  that  the  Bank  of 
Italy  and  the  two  banks  of  Naples  and  Sicily  could 
keep  in  circulation  was  fixed,  for  four  years,  at  the 
sum  of  1,097,000,000  lire,  divided  as  follows: 

Lire. 

Bank  of  Italy 800,  000,  000 

Bank  of  Naples 242,  000,  000 

Bank  of  Sicily 55.  000,  000 

After  four  years  the  circulation  was  to  be  gradually 
diminished  by  a  graded  yearly  quota,  so  that  when 
fourteen  years  had  elapsed  after  the  promulgation  of  the 
law  it  should  be  reduced  to  the  following  proportions: 

Lire. 

Bank  of  Italy 630,  000,  000 

Bank  of  Naples iQO,  000,  000 

Bank  of  Sicily 44.  000,  000 

The  total  circulation  thus  amounted  to  864,000,000  lire, 
corresponding,  for  the  Bank  of  Italy  exactly,  and  for  the 
two  banks  of  Naples  and  Sicily  approximately,  to  three 
times  the  paid-up  capital  of  the  one  and  the  free  capital 
possessed  by  the  others. 

The  reduction  of  the  maximum  of  circulation  was 
justified  by  the  gradual  liquidation  of  operations  non- 
liquid  in  form  or  not  allowed  under  the  new  law,  a  Hqui- 
dation  which  would  automatically  reduce  the  mass  of 
bank  notes  in  circulation.  The  banks  which,  at  the  end 
of  fourteen  years,  should  not  possess  a  capital  correspond- 
ing to  a  third  part  of  the  circulation  allowed  them  would 
be  obliged  within  three  months  to  reduce  this  circulation 


120 


The      Banks      of     Issue      in      Italy 

by  the  amount  in  excess  of  three  times  their  paid  up 
or  free  capital.  The  circulation  taken  away  from  one 
bank  was  to  be  granted  to  such  others  as  should  possess 
or  pay  up  the  capital  corresponding  to  and  available  for 
the  triple  issue.  The  auditing  of  the  paid  up  or  free 
capital  was  intrusted  to  a  commission  composed  of  seven 
members,  two  to  be  chosen  from  the  Senate,  two  from  the 
Chamber,  and  three  to  be  nominated  by  royal  decree. 

The  above  limits  did  not  include  bank  notes  that  the 
banks  could  issue,  without  restriction  as  to  amount,  pro- 
vided they  were  entirely  secured  by  legal  metallic  money 
or  by  gold  bars  deposited  in  the  coffers,  and  the  notes 
issued  for  ordinary  or  extraordinary  loans  to  the  State 
treasury. 

The  holders  of  notes  had  the  right  to  demand  their 
redemption  in  metallic  money  in  the  cities  of  Rome, 
Bari,  Bologna,  Cagliari,  Catania,  Florence,  Genoa,  I^eg- 
horn,  Messina,  Naples,  Palermo,  Turin,  Verona,  and 
Venice.  This  article,  which  was  already  included  in  the 
preceding  laws,  could  not,  however,  be  enforced,  since 
enforcing  it  would  have  led  to  the  exhaustion  and  expor- 
tation of  the  metallic  reserves  of  the  banks  of  issue,  because 
of  the  dearness  of  exchange. 

The  new  law  confirmed  for  five  years  the  legal  currency 
of  the  notes  of  the  three  banks  in  the  provinces  in  which 
they  had  their  own  estabUshments  and  representatives. 
It  is  to  be  stated  that  the  legal  currency  was  destined 
to  be  successively  confirmed  from  year  to  year  and  is 
still  in  force.  During  the  legal  currency  the  discount 
rate  was  to  be  the  same  for  the  three  banks  and  could 
not  be  changed  without  the  permission  of  the  Government. 


National     Monetary     Commission 

They  could,  however,  discount  at  a  rate  i  per  cent  below 
the  official  rate  paper  presented  by  people's  banks  and 
institutions  of  discount  and  agricultural  credit,  organized 
to  serve  as  intermediaries  between  the  small  trade  and  the 
banks  of  issue,  and  for  the  discount  of  warrants  of  general 
warehousing  and  consignments  free  of  taxation  (franchi  de- 
positi) .     The  discount  at  special  rates  was  to  be  limited — 

Lire. 

For  the  Bank  of  Italy 70,  000,  000 

For  the  Bank  of  Naples 21,  000,  000 

For  the  Bank  of  Sicily 4,  500,  000 

Each  bank  was  obliged  to  accept  through  the  operations 
of  any  kind  the  notes  of  the  other  banks  in  the  cities  in 
which  they  had  legal  currency. 

The  rules  for  the  mutual  redemption  of  notes  among 
the  banks  were  to  be  established  by  royal  decree  and 
presented  to  Parliament  within  the  year  1893,  to  be  con- 
verted into  a  law. 

The  metallic  reserve  was  to  be  increased  within  a  year 
from  33  per  cent  to  40  per  cent  of  the  notes  in  circula- 
tion, 33  per  cent  of  which  w^as  to  be  composed  of  Italian 
specie,  of  foreign  coin  admitted  to  legal  currency  in  the 
Kingdom,  and  in  bullion  in  the  ratio  of  at  least  three- 
quarters  in  gold  and  one-quarter  partly  in  silver  coin; 
and  as  for  the  remaining  7  per  cent,  it  could  also  be  com- 
posed of  foreign  bills  of  exchange  on  firms  of  the  first 
order,  recognized  as  such  by  the  Minister  of  the  treasury. 
A  like  reserve  of  40  per  cent  was  established  as  a  guar- 
anty of  the  debt  of  the  banks  represented  by  promissory 
notes,  checks,  bank  transfers,  and  other  paper  payable 
at  sight,  and  without  exception  all  paper  payable  to 
bearer. 


The      Banks      of     Issue      in      Italy 

The  article  that  authorized  the  banks  to  include  in  the 
metallic  reserve  foreign  bills  of  exchange  was  successively 
ampHfied  as  for  the  quantity  and  character  of  the  obhga- 
tions  so  as  to  permit  adding  thereto  treasury  bonds  of 
foreign  states  with  a  normal  metallic  circulation,  and  also 
certificates  of  deposits  of  money  with  foreign  banks  and 
bankers  who  were  correspondents  of  the  Italian  treasury. 
The  above  provision  wa  s  framed  for  two  different  reasons : 
The  one,  of  utility  to  the  banks  of  issue,  a  part  of  whose 
reserve  it  rendered  fruitful,  with  the  advantage  of  the 
reconstruction  of  their  free  capital;  the  other,  of  mone- 
tary utility,  since  it  allowed  the  banks  to  have  a  part 
of  their  funds  in  foreign  countries,  which  might  serve  as  a 
powerful  protection  in  case  of  monetary  disturbances  and 
high  rates  of  exchange.  From  this  point  of  view,  Italy 
introduced  into  its  banking  legislation  a  provision  already 
tried  to  advantage  in  other  countries,  such  as  Germany, 
Austria- Hungary,  Russia,  Switzerland,  Holland,  Belgium, 
and  Spain. 

By  article  9  of  the  law  it  was  stipulated  that  the  manu- 
facture of  bank  notes  should  take  place,  in  conformity 
with  special  regulations,  under  the  cooperation  of  the 
State  and  the  banks. 

The  tax  on  circulation  was  fixed  at  1  per  cent  of  the 
average  total  of  bank  notes,  after  deducting  the  metallic 
reserve. 

The  banks  would  pay,  therefore,  beside  the  tax  of  i  per 
cent,  an  extraordinary  tax  corresponding  to  double  the 
discount  rate  on  the  excess  of  circulation  and  the  deficit 
of  metallic  reserve. 


123 


National     Monet  ar^y     Commission 


Article  1 2  was  particularly  interesting ;  in  this  were  in- 
dicated the  operations  that  the  banks  could  carry  on,  that 
is,  discount  of  bills  of  exchange  having  not  more  than  four 
months  to  run  and  bearing  the  signatures  of  two  or  more 
persons  known  to  be  solvent ;  of  treasury  bonds ;  of  war- 
rants issued  by  societies  of  general  warehousing  and  con- 
signments free  of  taxation  (franchi  depositi) ;  of  coupons 
of  securities  admitted  in  loan  operations.  Loans,  for  not 
more  than  six  months,  on  government  securities  or  those 
guaranteed  by  the  State;  on  mortgage  certificates  issued 
by  realty  credit  institutions;  on  gold  bonds  issued  or 
guaranteed  by  foreign  states;  on  gold  and  silver  coin,  na- 
tional or  foreign,  at  legal  currency,  and  gold  bars;  on  silk 
raw  and  in  organzine  or  woven,  and  on  silver  bars  esti- 
mated at  not  m.ore  than  two-thirds  of  their  value;  on  cer- 
tificates of  warehousing  and  consignments  free  of  taxation 
(franchi  depositi) ;  on  orders  in  merchandise  or  sulphur, 
not  over  two-thirds  of  the  value;  on  certificates  of  con- 
signments of  spirits  and  cognac,  placed  in  the  warehouses 
legally  estabUshed,  for  not  more  than  half  the  value. 

Cash  purchases  and  sales  on  account  of  the  banks 
themselves  of  foreign  drafts  and  checks  and  foreign  bills 
of  exchange  of  not  more  than  three  months'  currency, 
payable  in  gold,  bearing  two  or  more  signatures  known  to 
be  solvent.  These  operations  could  not,  during  the  legal 
currency,  without  the  permission  of  the  minister  of  the 
treasury,  exceed  the  limit  necessary  for  refurnishing  the 
metallic  reserve  or  satisfying  the  needs  of  the  treasury. 
The  banks  were  to  liquidate  in  two  years  securities,  cer- 
tificates, and  goods  held  in  payment  of  or  as  guaranty  for 
their  credit,  and  within  three  years  the  mortgages  or  real 
estate  obtained  for  overdue  credits. 


124 


The      Banks      of     Issue      in      Italy 

The  banks  could  hold  a  quota  of  ItaHan  government 
stock  for  a  value  not  exceeding : 

Lire. 

For  the  Bank  of  Italy • .  .  .    70,  000,  000 

For  the  Bank  of  Naples 21,  000,  000 

For  the  Bank  of  Sicily 4,  000,  000 

The  banks  of  issue  could  receive  deposits  on  interest- 
bearing  accounts  current;  in  case,  however,  the  total  of 
accounts  current  exceeded : 

Lire. 

For  the  Bank  of  Italy 130,  000,  000 

For  the  Bank  of  Naples 40,  000,  000 

For  the  Bank  of  Sicily 12,  000,  000 

the  bank  was  obliged  to  reduce  the  circulation  by  three- 
quarters  of  the  excess.  The  interest  on  accounts  current 
could  not  exceed  half  the  discount  rate  during  the  first 
three  years  and  one-third  in  the  following  years. 

R-ealty  credit  operations  were  forbidden.  The  banks 
could  continue  winding  up  the  operations  which  had  been 
proposed  until  July  i,  1893.  All  uncovered  operations  in 
accounts  current  were  forbidden. 

The  Bank  of  Naples  was  authorized  to  continue  its 
pawn  operations.  The  banks  vvere  allowed  to  assume  the 
office  of  provincial  receivers  of  the  direct  taxes. 

The  Bank  of  Italy,  the  Bank  of  Naples,  and  the  Bank 
of  Sicily  were  obliged  to  liquidate  in  ten  years,  at  the  rate 
of  one-fifth  every  two  years,  operations  other  than  those 
permitted  by  the  new  law.  Obligations  settled  with  the 
statutory  reser\^e  could  be  considered  liquidated.  In  case  of 
not  completing  in  each  two  years  the  liquidation  of  a  fifth 
of  the  operations,  the  Bank  of  Italy  would  have  to  ask  the 
stockholders,  within  the  limits  of  the  nominal  capital,  for 
the  payment  of  the  sum  needed  to  complete  the  obligatory 
liquidation.     The  Banks  of  Naples  and  of  Sicily  were  to 


125 


National     Monetary     Commission 

devote  all  profits  to  the  completion  of  the  obligatory 
liquidation.  For  banks  which  had  not  conformed  to  the 
above  provisions  of  the  law  the  privilege  of  issuing  bank 
notes  would  be  suspended  for  a  sum  four  times  the 
amount  needed  to  complete  the  obligatory  liquidation. 
The  banks  which  had  carried  on  operations  forbidden  by 
the  law  would  be  liable  for  a  tax  equal  to  three  times  the 
discount  rate,  calculated  on  the  whole  duration  of  the 
operations. 

To  prevent  the  banks  from  being  induced  by  their 
own  initiative  or  by  pressure  from  the  Government 
to  carry  on  operations  of  special  character  having  in 
their  form  only  the  appearance  of  legality,  the  general 
directors  and  the  councils  of  the  three  banks  were  not 
allowed  to  conclude  discount  operations,  and  it  was  stipu. 
lated  that  no  bill  of  exchange  should  be  admitted  to 
discount  without  the  sanction  of  the  discount  commis- 
sion of  the  establishment  or  branch  to  which  it  had  been 
tendered.  At  the  end  of  each  fiscal  year  the  amount 
of  the  bills  overdue  and  unpaid  was  to  be  charged  to 
loss;  that  of  the  bills  subsequently  recovered  was  to  be 
added  to  the  profits  of  the  year  in  which  the  bills  were 

paid. 

The  law  granted  the  reduction  of  three-quarters  of  the 
registration  fee  of  deeds  of  sale  or  purchase  of  real  estate, 
and  releases  of  credits  made  for  the  liquidation  of  opera- 
tions not  admitted  by  the  said  law. 

The  law  authorized,  moreover,  the  banks  of  issue  to 
intrust,  in  whole  or  in  part,  the  liquidation  of  operations 
not  in  liquid  form  to  an  institution  which  should  be 
created  with  a  capital  of  no  less  than  40,000,000  lire,  to 

126 


The      Banks      of     Issue      in      Italy 

which  the  Government  could  make  special  concessions. 
But  the  banks  did  not  need  to  avail  themselves  of  this 
faculty. 

There  followed  in  the  law  the  stipulations  concerning 
the  organization  of  the  government  inspection  of  the 
banks  and  severe  penalties  for  fraudulent  infractions 
of  the  law;  next  came  provisions  as  to  the  liquidation 
of  the  Banca  Romana,  which  had  been  assumed  by 
the  State,  and  by  it  delegated  to  the  Bank  of  Italy,  which 
was  to  pay  on  account  of  the  liquidation  2,000,000  lire 
a  year  during  ten  years. 

An  article  of  the  law  stipulated  that  members  of  Par- 
liament could  not  fill  any  office,  with  or  without  remu- 
neration, in  the  banks  of  issue. 

As  we  have  seen,  the  new  law  corresponded  in  its 
general  outline  to  the  programme  that  had  been  chosen 
as  the  one  that  appeared  best  adapted  to  the  conditions 
of  the  moment,  consisting  in  assuring  the  gradual  liqui- 
dation of  the  burdensome  inheritance  left  by  the  stormy 
vicissitudes  of  the  past  to  the  Italian  banks,  and  in  provid- 
ing at  the  same  time  for  surrounding  the  further  action 
of  the  said  banks  with  timely  precautions,  subjecting 
them  to  salutary  checks  rendered  efficacious  by  severe 
penalties  so  as  to  avoid  new  mistakes  and  disorders. 

With  the  exception  of  a  few  details  of  small  impor- 
tance arising  from  the  different  character  of  the  three 
banks,  the  law  subjected  them  all  to  the  same  regulations, 
and  the  severe  regulation  of  the  government  supervision 
insured  that  the  action  of  the  three  banks  in  observing 
the  said  law  should  be  uniform,  as  if  there  were  in  fact 
one  single  bank  of  issue. 

39781°— II — 9  l2^ 


National     Monetary     Commission 

And  while  in  this  way  were  obviated  the  dangers  of  the 
pluraHty  of  banks,  of  which  Italy  had  made  a  very  dismal 
trial,  or  at  least  the  disadvantages  of  the  system  were 
diminished,  provision  was  made  by  increasing  the 
metallic  reserve  for  removing  the  other  cause,  already 
stated,  of  the  inferiority  of  the  Italian  paper  currency. 
As  for  the  meddling  of  politics  in  the  management  of 
the  banks  of  issue,  it  was  supposed  to  be  provided  for  by 
the  law  stipulating  that  senators  and  deputies  could  not 
hold  ofhce  in  the  banks. 

This  provision,  which  was  rightly  said  to  savor  of  Jaco- 
binical distrust,  was  not  included  in  the  bill  presented  by 
the  Government  and  was  added  during  the  discussion  in 
the  Chamber.  It  was  not,  however,  in  any  way  justified, 
since  it  had  not  appeared,  and  did  not  appear  later  from 
the  parliamentary  inquiry  that  there  had  been  in  Parlia- 
ment members  of  the  council  of  banks  of  issue,  who,  abus- 
ing their  function  as  senators  and  deputies,  had  harmed 
the  banks  or  had  in  any  way  whatsoever  in  their  double 
capacity  as  politicians  and  as  administrators  of  the 
banks  of  issue  committed  dishonest  acts  such  as  would 
justify  the  incompatibility  established.  The  effect  of  that 
provision  of  the  law  was,  meanwhile,  to  deprive  the  banks 
of  men  of  great  authority  and  unquestioned  uprightness, 
such  as  Senator  Tittoni,  aftenvards  foreign  minister; 
Senators  Balestra,  Lancia  di  Brolo,  Ridolfi,  Chiara- 
monte  Bordonaro,  and  Deputy  Giuseppe  Pavoncelli, 
later  minister  of  public  works.  Besides,  this  law  forbade 
and  still  forbids  the  King  to  confer  the  dignity  of  senator 
on  men  who  in  the  administration  of  the  banks  of  issue 
render  themselves  worthy  of  public  honor. 


128 


Chapter  X. 

THE  PARIvIAMENTARY  COMMITTEE  OF  INQUIRY — AGGRAVA- 
TION OF  THE  FINANCIAL  AND  ECONOMIC  SITUATION — 
FINANCIAL  AND  BANKING  PROVISIONS  OF  MINISTER 
SONNINO   AND   THEIR   EFFECT. 

The  law  of  1893,  although  not  perfectly  successful,  neces- 
sarily, perhaps,  because  of  the  condition  of  things  and  the 
general  anxiety,  was  none  the  less  of  a  kind  to  quiet  uneasi- 
ness and  to  cause  a  revival  of  confidence  in  a  gradual 
amelioration  of  the  circulation  and  the  banks,  but  it  did 
not  succeed  in  accomplishing  the  desired  result.  Political 
passions,  instead  of  calming  down,  grew  more  inflamed, 
while  at  the  same  time  the  results  of  the  inspection  of 
banks  showed  that  their  situation  Vv^as  much  more 
serious  than  had  been  supposed  in  the  beginning.  The 
Government  now  recognized  the  necessity  of  allowing  the 
nomination  of  a  parliamentary  committee  of  inquiry, 
charged  with  ascertaining  any  incorrect  relations  of  poli- 
ticians and  the  public  departments  with  the  banks  of 
issue.  Although  the  committee  of  inquiry  was  composed 
of  honorable  and  authoritative  men,  it  did  not  succeed 
in  entirely  escaping  the  influences  of  the  surrounding 
parliamentary  agitation  and  was  not  always  conducted 
with  calm  impartiality.  Thus,  when  it  ascertained  the 
loan  mentioned  above  of  8,000,000  lire  made  by  the  Banca 
Nazionale  to  the  Banca  Romana,  the  committee  bitterly 
reproached  the  Banca  Nazionale,  declaring  it  did  not  seem 
credible  that  it  should  have  been  ignorant  of  the  condi- 


129 


National     Monetary     Commission 

tions  of  the  Banca  Romana,  as  if  insinuating  that,  ahhough 
knowing  them,  it  had  consented  to  help  hide  them.  To 
this  insinuation,  which  had  suggested  to  Deputy  Cavallotti 
^aying  before  the  government  the  before-mentioned  inquiry, 
the  general  director  of  the  Banca  Nazionale  replied  scorn- 
fully and  haughtily  in  a  letter  published  in  the  newspapers. 
The  presentation  to  Parliament  of  the  report  of  the 
committee  of  inquiry  unloosed  a  furious  tempest,  in  the 
presence  of  which  the  ministry  resigned.  It  may  well 
be  suspected  that  the  ministry  was  violently  attacked  in 
some  quarters  also  for  having  dared  to  probe  to  the 
bottom  the  affairs  of  the  Banca  Romana,  to  the  point 
of  allowing  the  legal  authorities  to  proceed  to  the  arrest 
of  the  governor  and  the  head  cashier  of  the  bank  and 
other  supposed  accomplices.  Even  if  the  attacks  against 
the  president  of  the  council  were  apparently  justified 
by  an  unfriendly  judgment  expressed  in  his  regard  by 
the  committee  of  inquiry,  in  reality  the  united  oppo- 
sition which  could  not  in  good  faith  ignore  his  personal 
integrity,  had  found  itself  agreed  upon  the  aim  of  ruining 
the  ministry.  And  that  w^as  neither  the  first  nor  the  last 
time  in  which  a  ministerial  crisis  was  produced  in  Italy  as 
the  result  of  an  event  for  which  the  ministry  was  not  at  all 
responsible. 

The  inordinate  clamor  which  political  passion  had 
raised  over  the  fall  of  the  Banca  Romana  and  the  excessive 
exaggeration  of  accusations  and  charges  seemed  to  justify 
the  suspicion  that  all  the  poHtical,  economical,  and  banking 
life  of  Italy  was  corrupt.  Naturally  all  this  could  not  fail 
to  produce  harmful  effects  on  the  public  credit.  And  in 
truth  the  period  between  the  middle  of  1893  and  the  middle 


130 


The      Banks     of     Issue      in      Italy 

of  1894  ^ay  be  considered  in  every  respect  one  of  the 
darkest  and  most  distressing  through  which  new  Italy  has 
passed.  Government  rentes  went  down  on  the  Paris 
market  from  a  maximum  quotation  of  93.50  to  a  minimum 
of  72,  due  hkewise  to  the  distinct  resumption  of  hostihties 
by  the  French  market  as  a  resuh  of  the  painful  conflict 
started  at  Aigues  Mortes  between  Italian  and  French 
workmen,  which  helped  to  aggravate  the  situation  in  Italy. 
As  a  necessary  consequence  of  the  fall  in  rentes,  exchange 
went  up  from  the  rate  of  102.30,  the  maximum  point 
touched  in  1892,  to  the  maximum  of  115.95,  a  rate  never 
reached  before  that  time. 

But  whether  as  a  coincidence  or  reflex  of  the  banking 
crisis,  not  only  did  the  conditions  of  credit  in  general  and 
national  economy  appear  grave,  but  also  those  of  the 
public  finances.  The  budget  which  had  closed  with  a 
surplus  of  more  than  9,000,000  lire  for  the  financial  year 
1 892-1 893,  now  showed  a  great  deficit,  without  taking 
into  account  the  increase  of  debts  incurred  under  various 
forms  and  the  expedients  which  were  resorted  to  in 
order  to  provide  for  the  ever  increasing  needs  of  the 
treasury. 

The  Giolitti  Ministry  was  succeeded  by  a  new  Crispi 
Ministry,  in  which  Signor  Sidney  Sonnino  accepted 
the  treasury  portfolio.  His  first  effort  was  devoted  to 
making  an  accurate,  profound  analysis  of  the  actual  con- 
ditions of  finance  in  relation  not  only  to  the  account  of 
revenues  and  ordinary  expenditures,  but  also  to  the 
situation  of  the  treasury  and  the  amounts  extraordinary 
for  building  railroads  and  many  other  needs  of  the  State. 
The  result  of  his  conscientious  study  was  the  discovery  of 


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National    Monetary     Commission 

a  situation  which  the  minister  did  not  hesitate  to  declare 
very  serious,  which  he  summed  up:  In  a  deficit  of 
155,000,000  in  the  ordinary  expenditures;  in  a  treasury 
debt  of  565,000,000,  which  needed  systematizing;  in  the 
abnormal  conditions  of  circulation;  in  the  uneasiness 
that,  as  a  result  of  an  economic  derangement  felt  by  every- 
one, was  spreading  over  the  country.  And,  making  a 
brief  analysis  of  the  causes  that  had  led  Italy  into  the  sad 
condition  ascertained,  he  did  not  hesitate  to  declare  that 
these  causes  must  be  found  in  the  waste  made  of  money 
amounting  to  millions  and  billions,  borrowed  without  due 
forethought  and  used  in  unproductive  or  unnecessary  ex- 
penditures. He  bitterly  reproved  Parliament  for  delud- 
ing itself  and  the  public  during  fifteen  years  as  to  the 
real  condition  of  the  public  finances,  and,  in  conclusion, 
made  a  lively  appeal  for  energetic  and  virile  action  to 
save  the  country  from  the  financial  and  economic  ruin 
that  threatened  it. 

The  stubborn  optimists  tried  to  reprove  Signor  Sonnino 
for  depicting  the  situation  in  such  very  dark  colors;  but 
they  did  not  succeed  in  lessening  the  great  impression 
produced  by  the  courageous  exposal  made  by  the  min- 
ister of  the  actual  conditions  of  the  country  and  finance. 
Signor  Sonnino  was,  therefore,  as  will  be  seen  later,  as 
energetic  in  the  cure  of  the  trouble  and  fortunate  in  its 
issue  as  he  was  merciless  in  its  diagnosis. 

But  even  before  he  had  arranged  in  concrete  form  the 
provisions  aiming  at  the  systematizing  of  the  treasury  and 
restoring  finance,  he  was  obliged  to  intervene  speedily 
in  order  to  avoid  the  aggravation  of  the  monetary  and 
economic  situation  of  the  country. 


132 


The      Banks      of     Issue      in      Italy 

The  considerable  decline  of  the  Italian  rentes  in  Paris 
provoked  a  grave  crisis  on  the  Italian  stock  exchanges,  a 
crisis  that  overwhelmed  the  two  biggest  credit  insti- 
tutions then  existing,  the  Credito  Mobiliare  Italiano  and 
the  Banca  Generale,  one  with  a  paid-up  capital  of 
60,000,000  lire,  the  other  with  a  paid-up  capital  of 
30,000,000  lire.  The  failure  of  these  institutions  was  the 
chief  cause  of  the  aggravation  of  the  situation.  Securities 
continued  to  decline  sharply  in  a  way  never  before  wit- 
nessed, and  the  panic  seized  even  depositors,  who  crowded 
to  the  doors  of  the  banks  and  savings  institutions  in  order 
to  obtain  immediate  payment  of  deposits.  The  situa- 
tion then  appeared  terrifying  and  threatening.  The 
minister  of  the  treasury,  Signor  Sonnino,  and  the  min- 
ister of  agriculture,  industry,  and  commerce,  Signor 
Boselli,  to  save  the  country  from  the  most  serious  con- 
sequences, were  ready  to  provide,  through  royal  decree 
of  the  date  of  January  23,  1894,  for  placing  the  banks  of 
issue  in  a  condition  to  come  to  the  aid  of  the  very  grave 
situation.  The  royal  decree  authorized  the  banks  to 
issue  notes  beyond  the  normal  limits  up  to  the  amount: 

Lire. 

For  the  Bank  of  Italy 90,  000,  000 

For  the  Bank  of  Naples 28,  000,  000 

For  the  Bank  of  Sicily 7,  000,  000 

on  condition  of  the  payment  of  a  tax  equal  to  two-thirds 
of  the  discount  rate,  instead  of  double  the  discount  rate  as 
stipulated  in  the  law  of  August  lo,  1893.  The  notes  were 
to  have  the  required  metallic  reserve.  The  same  royal 
decree  suspended  the  provision  of  the  law  by  which  the 
banks  were  obliged  to  reduce  the  circulation  by  three- 
quarters  of  the  amount  of  the  deposits  in  accounts  current, 

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National     M  on  et  ar  y     Commission 

in  addition  to  the  sums  indicated.  So,  twenty-three  days 
after  that  banking  law  had  gone  into  force,  it  was  necessary 
to  provide  for  modifying  it  temporarily.  The  effect  of  the 
royal  decree  was  salutary,  because  it  succeeded  in  stopping 
the  run  of  depositors  on  the  banks  and  savings  institu- 
tions by  the  influence  of  that  phenomenon  of  a  psycho- 
logical nature  which  is  always  evident  in  similar  cases. 

Viewed  as  a  whole,  the  very  grave  banking  crisis  that 
Italy  suffered  from  at  that  time  may  be  considered  as  the 
inevitable  result  of  the  failure  to  keep  in  mind  the  rules 
that  must  always  guide  the  management  of  the  banks  of 
issue  and  the  institutions  of  credit.  The  banks  of  issue, 
for  reasons  already  stated,  were  impelled  and  forced  to 
disregard  the  principles  that  must  govern  the  activity 
of  banks  authorized  to  issue  paper  money;  the  institu- 
tions of  credit,  because  of  a  mistaken  estimate  of  the 
economic  conditions  of  the  country,  forgot  that  institu- 
tions that  operate  in  large  part  with  the  money  of  depos- 
itors must  use  the  greatest  care  to  avoid  t3dng  up  the 
capital,  which  may  be,  as  it  was  then,  as  it  had  been 
before  in  other  countries,  as  it  will  doubtless  be  in  the 
future,  a  cause  of  economic  crises  and  of  inevitable  ruin 
for  these  institutions.  In  the  face  of  the  painful  results 
of  experience  discussions  then  arose  in  Italy  that  were  to 
arise  in  1907  in  Germany  and  Italy  with  regard  to  the 
perils  that  may  be  incurred  by  institutions  of  credit  which 
employ  too  large  a  part  of  the  depositors'  money  in  direct 
participation  in  industrial  undertakings  and  in  affairs  of 
a  speculative  nature. 

The  Banca  Generale  and  the  Credito  Mobiliare  went 
into  a  forced  liquidation,  the  result  of  which  showed  that 


134 


The      Banks      of     Issue      in      Italy 

the  first  would  have  been  strong  enough  to  Hve  on  a  basis 
of  its  own  if  it  had  not  been  overturned  by  the  fury  of 
the  blast  that  made  it  impossible  to  examine  its  situation 
calmly  and  shut  out  the  aid  that  could  have  been  afforded 
by  suitable  and  relatively  Hmited  means. 

The  Government  then  showed  the  desire  to  know  with 
greater  exactness  the  conditions  of  the  banks  of  issue  in 
order  to  see  whether  it  was  possible  for  them  to  conform 
to  the  stipulations  of  the  law  of  1893,  and  a  ministerial 
decree  of  February  15  arranged  for  a  complete  new  in- 
spection of  these  banks  in  order  to  ascertain  the  solidity 
of  their  financial  situation  and  the  amount  of  operations 
not  in  conformity  with  the  law,  likewise  the  situation  of 
the  cash  and  circulation. 

The  work  of  the  ministry  in  the  matter  of  finance  and 
circulation  entered  then  upon  a  period  of  truly  feverish 
activity.  By  royal  decree  of  February  21,  1894,  con- 
verted into  a  law  July  22,  1894,  the  treasury  was  author- 
ized to  increase  the  circulation  of  state  notes  to  600,000,000 
lire,  comprising  in  that  sum  200,000,000  lire  which  the 
treasury  was  to  furnish  the  banks  of  issue  in  exchange 
for  the  same  amount  in  gold  that  they  had  been  forced 
to  set  aside  at  the  disposal  of  the  treasury,  to  be  dis- 
tributed as  follows: 

Lire. 

Bank  of  Italy 145,  000,  000 

Bank  of  Naples 45, 000, 000 

Bank  of  Sicily 10,  000,  000 

The  state  notes  were  as  a  matter  of  fact  declared  at 
forced  currency,  since  their  exchange  into  metallic  money 
was  suspended  and  there  had  passed  into  full  possession 
and  disposal  of  the  treasury  certificates  of  public  debt  for 


13s 


National     Monetary     Commission 

the  amount  of  367,750,700  lire,  which  were  deposited  as 
a  guaranty  for  the  said  notes.  In  such  a  way  the  state 
notes  which  had  been  thus  created  originally  in  1881  for 
the  sum  of  340,000,000  lire,  with  a  guaranty  of  234,000,000 
lire  in  rentes,  and  had  risen  by  June  30,  1893,  to  367,- 
000,000;  these  notes  which  had  been  intended  to  be  with- 
drawn and  cancelled  annually  by  the  surplus  of  the  budget 
were  increased  to  600,000,000  lire  and  deprived  of  all 
guaranty.  The  amount  of  600,000,000  in  state  bank 
notes,  authorized  by  the  law  of  June  22,  1894,  was  never 
reached,  for,  including  558,000,000  lire  in  cash  orders  of 
I  and  2  lire,  created  by  royal  decree  August  4,  1893,  and 
February  21,  1894,  and  45,000,000  hre  issued  for  the  Bank 
of  Naples,  as  will  be  shown  presently,  they  reached  a 
maximum  total  of  556,000,000  lire  on  June  30,  1898,  and 
were  reduced  on  June  30,  1899  to  434,500,000  lire,  includ- 
ing 23,000,000  lire  left  over  from  the  45,000,000  lire  issued 
on  the  account  of  the  Bank  of  Naples,  with  a  guaranty  of 
gold  specie  to  the  amount  of  176,700,000  lire. 

The  existence  in  circulation  of  state  notes  has  often 
given  rise  to  discussions  in  Italy,  and  it  has  been  proposed 
several  times  to  withdraw  these  notes.  And,  indeed,  it 
does  seem  strange  that  the  Government,  which  has  rightly 
been  concerned  with  the  absolute  necessity  of  reforming 
the  banking  currency,  not  only  has  never  given  a  thought 
to  reforming  its  own  currency,  but  has,  instead,  made  it 
worse.  However,  granting  that  the  suppression  of  state 
notes  would  be  useful  to  the  country  from  the  monetary 
point  of  view,  it  should  be  remembered,  nevertheless, 
that  most  of  the  state  notes  issued  do  not  burden  the 
country,  but  are  very  willingly  accepted  for  their  great 

136 


The      Banks     of     Issue      in      Italy 

convenience  in  small  transactions  and  are  preferred  to 
5-lire  silver  pieces. 

In  fact,  a  great  part  of  the  state  notes  are  sought  for  by 
Italian  emigrants  abroad,  who  prefer  them  to  checks  for 
sending  small  sums  of  money  to  Italy.  And  although  in 
actual  figures  they  show  an  increase  from  1881  until  to-day, 
yet,  considered  in  relation  to  the  increase  of  population 
and  trade,  and  in  relation  to  the  total  amount  of  the  cur- 
rency, they  show,  instead,  a  decrease.  In  1889  having 
redeemed  in  specie  nearly  the  whole  of  the  association 
notes  debited  to  the  State,  there  were  in  circulation 
1,116,000,000  Hre  in  notes  of  the  banks,  compared  to 
334,000,000  lire  state  notes  of  5,  10,  and  25  lire.  The  pro- 
portion between  the  state  notes  and  those  of  the  banks 
was  about  30  per  cent,  while  at  the  end  of  1908  the  state 
notes  amounted  to  468,000,000  lire  and  represented  25  per 
cent  of  the  total  notes  in  circulation.  Although  there 
are  in  circulation  silver  coins  for  i  and  2  lire  and,  in 
smaller  proportions,  5-lire  pieces,  yet  the  fractional  cur- 
rency is  shown  to  be  rather  deficient,  especially  in  mo- 
ments of  greater  need,  determined  by  the  silk  market  and 
the  harvest  of  the  principal  agricultural  products. 

It  must  be  understood,  in  any  case,  that  the  forced  cur- 
rency of  the  state  notes  was  a  provision  of  an  absolutely 
extraordinary  nature,  made  at  a  moment  when  it  was 
important  to  regulate  a  most  difiicult  and  threatening 
situation,  in  which  the  conditions  of  the  foreign  market 
with  respect  to  Italy  and  even  more  those  of  the  home 
market,  would  not  have  permitted  making  an  appeal  to 
credit.  It  can  not  be  said,  indeed,  that  Signor  Sonnino 
lacked  the  courage  to  act  with  energy,  since,  after  taking 


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National     Monetary     Commission 

exact  account  of  the  gravity  of  the  situation,  he  con- 
sidered all  the  means  fitted  to  cope  with  it,  not  even  stop- 
ping at  the  unpopular  ones  of  increasing  the  existing  taxes, 
and  imposing  new  taxes,  and  the  one,  judged  dangerous 
to  Italian  credit,  of  increasing  from  13.20  per  cent  to  20 
per  cent  the  tax  on  personal  property  in  government 
rentes. 

This  is  not  the  place  to  examine  all  the  provisions 
proposed  by  Signor  Sonnino  and  approved  by  Parlia- 
ment in  order  to  relieve  the  conditions  of  the  public 
finances  and  put  new  life  into  the  depressed  economic 
situation  of  the  country;  let  it  suflice  to  note  here  that 
the  desired  effect  was  quickly  reached,  since  the  budget 
of  1894-95  closed  with  a  surplus  of  about  half  a  miUion; 
Italian  rentes  in  spite  of  the  increase  of  the  tax  advanced 
on  the  Paris  market  to  91,  and  commercial  activity,  which 
had  suffered  a  falling  off,  began  to  increase  again. 

We  must  return,  however,  to  the  banking  provisions 
that  Signor  Sonnino,  in  agreement  with  Minister  Boselli, 
proposed  at  the  same  time  with  the  financial  ones.  A 
royal  decree,  carrying  out  the  law  of  August  10,  1893, 
provided  for  regulating  the  method  of  the  mutual  redemp- 
tion of  bank  notes  among  the  banks  of  issue,  so  as  to  render 
it  efficacious.  The  decree  stipulated  that  the  redemption 
should  be  effected  without  limitation  and  that  on  the 
sums  remaining  to  the  debit  of  a  bank,  interest  should 
be  reckoned  in  favor  of  the  creditor  institution. 

The  law  of  July  22,  1894  modified  the  provisions  made 
under  pressing  necessity  in  January  of  the  same  year, 
relating  to  the  excess  of  circulation  of  bank  notes  over 


138 


The     Banks      of     Issue      in      Italy 

the  normal  limits,  establishing  that  the  institutions  could 
issue,  respectively: 

Lire. 

Bank  of  Italy 45 ,  000,  000 

Bank  of  Naples 14,  000,  000 

Bank  of  Sicily 3,  500,  000 

on  condition  of  paying  a  tax  equal  to  two-thirds  of  the 
discount  rate,  and  could  further  exceed  the  circulation 
by  a  like  amount,  on  condition  of  paying  a  tax  equal  to 
the  discount  rate.  The  above-mentioned  excess  of  cir- 
culation, however,  was  to  be  guaranteed  by  the  prescribed 
metallic  reserve  in  the  ratio  of  40  per  cent. 

As  for  the  obligation  to  reduce  the  circulation  by  three- 
quarters  of  the  excess  of  deposits  in  accounts  current 
beyond  the  sums  indicated,  it  was  stipulated  that  this 
reduction  should  be  limited  to  one-third. 

The  amount  of  statutory  loans  that  the  banks  of  issue 
were  obliged  to  make  the  Government  was  fixed  at 
125,000,000  lire,  distributed  as  follows: 

Lire. 

Bank  of  Italy 90,  000,  000 

Bank  of  Naples 28,  000,  000 

Bank  of  Sicily 7,  000,  000 

After  settling  that  import  duties  were  to  be  paid 
in  metallic  money,  this  law  stipulated  that  for 
those  not  exceeding  200  lire  state  notes  or  bank  notes 
should  be  accepted,  with  the  addition  of  exchange.  It 
further  established  that  the  banks  of  issue  should  provide 
certificates  useful  for  the  payment  of  import  duties,  by 
receiving  a  like  amount  in  bank  and  state  notes,  without 
limitation  as  to  amount,  with  the  addition  of  exchange. 
In  a  special  account  current  the  banks  were  to  be  debited 
with  the  sums  deposited  for  the  issue  of  certificates  and 


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National     Monetary     Commission 

credited  with  sums  paid  abroad  on  account  of  the  treasury. 
The  differences  resulting  in  profit  or  loss  from  this  service 
were  to  be  evenly  divided  between  the  treasury  and  the 
banks. 

As  long  as  the  redemption  of  state  notes  in  specie  re- 
mained suspended,  bank  notes  could  be  changed  into  state 
notes  or  into  specie  with  the  addition  of  exchange. 

By  royal  decree  of  October  12,  1894,  the  government 
supervision  of  banks  of  issue,  and  the  liquidation  of  the 
Banca  Romana,  undertaken  first  by  both  the  minister  of 
agriculture,  industry,  and  commerce  and  the  minister  of 
the  treasury,  was  intrusted  exclusively  to  the  latter. 

Having  provided  by  this  and  other  provisions  of  minor 
note  for  regulating  the  various  urgent  questions  concern- 
ing the  currency  and  the  treasury.  Minister  Sonnino  made 
the  banking  law  of  August  10,  1893,  the  subject  of  careful 
study,  in  relation  to  the  situation  of  the  banks,  which 
was  henceforth  more  clearly  defined  because  of  the  new 
inspection  that  had  been  applied  to  these  banks.  Opera- 
tions that  were  not  in  a  liquid  form  or  not  allowed  by  the 
new  law  were  found  on  February  20,  1894,  to  amount 
to  638,366,685  lire — that  is  to  say: 

Lire. 

For  the  Bank  of  Italy 449,  420,  000 

For  the  Bank  of  Naples 169,  613,  316 

For  the  Bank  of  Sicily 19,  333,  369 

However,  more  than  half  of  the  banking  currency  was 
represented  by  operations  of  difficult  or  tardy  liquidation, 
or  not  suitable  for  banks  of  issue;  operations  among 
which  noteworthy  losses  were  concealed.  Now  that  he 
was  more  directly  informed  of  the  actual  facts,  Signer 
Sonnino,   minister    of    the   treasury,  who   had    returned 


140 


The      Banks     of     Issue      in      Italy 

to  the  ideas  expressed  at  the  moment  of  the  failure  of 
the  Banca  Romana,  and  had  even  rejected  proposals  that 
were  made  to  him  by  foreign  capitalists  for  the  creation 
of  a  new  bank  of  issue,  could  not  neglect  giving  his  atten- 
tion to  the  conditions  revealed  in  the  Bank  of  Italy,  and 
stipulated  with  it  an  agreement  dated  October  30,  1894, 
of  which  the  principal  points  were  as  follows: 

The  assuming  on  the  part  of  the  Bank  of  Italy  at  its 
own  entire  risk  and  peril  of  the  liquidation  of  the  Banca 
Romana,  relieving  the  State  of  whatever  losses  might 
result  beyond  the  sums  to  be  paid  by  the  Bank  of  Italy 
at  the  rate  of  2,000,000  lire  a  year. 

The  bank  itself  engaged  to  deduct  from  net  earnings 
and  to  set  aside  4,000,000  lire  in  the  year  1894,  5,000,000 
hre  in  1895,  ^'^^  6,000,000  lire  in  1896  and  the  following 
years,  until  the  end  of  1903.  These  sums  were  to  be 
invested  in  State  securities  or  securities  guaranteed  by 
the  State,  to  be  used,  together  with  the  relative  com- 
pound interest,  for  securing  within  ten  years  the  liquida- 
tion of  operations  not  realized  on  or  not  in  conformity  to 
the  law,  and  to  compensate  for  losses  resulting  from  the 
liquidation  of  the  Banca  Romana  over  and  above  the 
annual  payment  of  2,000,000  lire. 

The  agreement,  evidently  anticipating  provisions  that 
Minister  Sonnino  already  had  in  mind,  which  were  as  a 
matter  of  fact  afterwards  proposed  and  carried  out,  stipu- 
lated that  if  the  time  fixed  at  ten  years  for  the  liquidation 
of  operations  not  in  a  liquid  form  or  forbidden  by  the 
law  should  be  prolonged,  and  consequently  the  two-year 
periods  extended,  the  bank  should  continue  for  the  longer 
time  granted   the   setting   aside   of   6,000,000   lire  of  its 


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National    Monetary     Commission 

profits.  The  Bank  of  Italy  was  obliged  to  continue  the 
deduction  of  profits  for  the  increase  of  the  ordinary  reserve 
and  could  not  distribute  to  shareholders  a  dividend  greater 
than  40  lire,  being  obliged  to  deposit  in  the  reserve  every- 
thing in  excess  of  this  amount. 

The  Bank  of  Italy  agreed  to  ask  the  stockholders^  for  a 
payment  of  100  lire  a  share  and  to  deduct  a  correspond- 
ing sum  of  30,000,000  lire  from  the  valuation  of  its  own 
capital,  which  was  thus  reduced  to  270,000,000  lire  nomi- 
nal capital,  divided  into  300,000  shares  of  900  lire  each, 
nominally,  with  700  lire  paid  up;  that  is  to  say,  with  a 
paid-up  capital  of  210,000,000  lire.  The  30,000,000  lire 
paid  by  the  stockholders  and  not  computed  in  the  increase 
of  paid-up  capital  was  destined  to  cancel  a  like  sum  of 
overdue  and  unpaid  operations  included  in  the  operations 
of  difficult  or  tardy  liquidation. 

The  Bank  of  Italy  assumed  the  treasury  service  of  the 
state  in  all  the  provinces  of  the  Kingdom  from  February 
I,  1895,  until  December  31,  191 2.  It  was  to  receive  pay- 
ments of  amounts  on  account  of  the  state  and  the  various 
departments  connected  with  it,  and  was  to  exact  payments 
in  favor  of  creditors  of  both.  In  guaranty  for  this  service 
the  bank  was  to  furnish  an  initial  surety  of  50,000,000  lire 
in  state  securities,  or  securities  guaranteed  by  the  state,  to 
be  increased  to  90,000,000  lire  within  six  years. 

The  amount  of  statutor}^  loans  to  be  made  by  the  bank  to 
the  treasury  was  increased  from  90,000,000  to  100,000,000 
lire.  The  state  left  with  the  bank  a  permanent  cash  fund 
of  30,000,000  lire  solely  for  the  needs  of  the  ordinary  treas- 
ury service,  except  for  the  necessary  provision  for  extraor- 
dinary payments.     When  the  cash  fund  rose  to  more  than 


142 


The      Banks      of     Issue      in      Italy 

40,000,000  lire,  the  bank  was  to  pay  the  state  a  net  inter- 
est of  1.50  per  cent;  when,  on  the  other  hand,  it  fell 
below  10,000,000  lire,  the  state  was  to  pay  the  bank  a 
like  interest.  The  cash  fund,  however,  was  always  to  be 
brought  up  to  a  total  of  30,000,000  lire  in  the  course  of 
every  ten  days,  so  that  on  the  evening  of  the  loth,  the 
20th,  and  the  last  day  of  the  month  (dates  on  which  the 
bank  statements  were  to  be  published)  the  fund  should 
amount  to  30,000,000  lire. 

In  the  agreement  it  was  stipulated  that  during  the  legal 
currency,  and  as  long  as  the  Bank  of  Italy  carried  on  the 
treasury  service  of  the  state,  it  could  not  ask  the  Bank  of 
Naples  and  the  Bank  of  Sicity  for  the  redemption  of  their 
notes  which  had  entered  its  coffers  until  a  like  amount  of 
the  outstanding  notes  of  the  bank,  at  the  end  of  ten  days, 
should  be  in  the  coffers  of  the  two  banks.  This  stipulation, 
by  which  was  weakened  anew  the  principle  of  the  obliga- 
tion of  mutual  redemption  of  notes  among  the  banks,  was 
justified  by  the  consideration  that  in  the  course  of  the 
treasury  service  the  Bank  of  Italy  would  collect,  especially 
in  southern  Italy,  a  great  quantity  of  the  notes  of  the  two 
banks  which  they  would  have  difficulty  in  redeeming. 

On  this  point  it  may  be  objected  that  the  cash  trans- 
actions of  the  treasury  being  accounted  separately  from 
those  of  the  bank  and  being  controlled  by  the  offi- 
cers delegated  by  the  treasiury,  the  anticipated  incon- 
venience might  have  been  avoided  by  excluding  from 
redemption  such  notes  of  the  two  banks  as  had  entered 
into  the  bank  through  treasury  operations.  These  could 
have  been  spent  by  the  Bank  of  Italy  in  the  operations 
themselves  or  in  those  of  the  bank,  leaving  the  principle  of 
the  mutual  redemption  of  notes  in  full  force  for  the  re- 
39781°— II 10  143 


National    Monetary     Commission 

maining  notes.  It  must  be  stated,  however,  that  no  incon- 
venience has  been  feh  as  a  result  of  this  provision,  since 
the  relations  among  the  three  banks,  even  in  regard  to  the 
redemption  of  notes,  have  been  perfectly  correct,  and  their 
circulation  has  not  suffered  from  the  above-mentioned 
stipulation. 

This  agreement  was  approved  by  royal  decree  of  Decem- 
ber ID,  1894,  which  was  converted  into  a  law  August  9, 
1895.  Although  the  agreement  laid  fresh  burdens  upon 
the  Bank  of  Italy,  such  as  the  liquidation,  at  its  own  risk, 
of  the  Banca  Romana  and  all  the  expense  of  the  treasury 
service,  it  produced,  nevertheless,  a  good  impression, 
because  notwithstanding  the  difficulties,  now  well  known, 
in  which  the  bank  was  involved,  the  Government  by 
intrusting  to  it  the  treasury  service  showed  that  it  had  the 
greatest  confidence  in  the  solidity  of  its  framework, 
whereas  the  payment  by  the  shareholders  of  30,000,000 
lire  assigned  to  cancel  losses,  and  the  obligation  of  the 
annual  setting  aside  of  profits  facilitated  the  gradual 
building  up  of  the  capital  of  the  bank  and  the  improve- 
ment of  its  circulation. 

In  the  law  that  ratified  the  agreement  between  the 
Government  and  the  Bank  of  Italy  other  provisions  were 
made  concerning  the  banks  of  issue,  among  which  was  the 
increase  of  the  amounts  they  were  permitted  to  invest  in 
rentes:  Bank  of  Italy,  from  70,000,000  to  75,000,000  lire; 
Bank  of  Naples,  from  21,000,000  to  30,000,000  lire;  Bank 
of  Sicily,  from  4,000,000  to  8,000,000  lire. 

The  amount  of  deposits  in  accounts  current  beyond 
which  the  circulation  was  to  be  reduced,  in  the  ratio  of 


144 


The      Banks      of     Issue      in      Italy 

one-third,  was  increased:  For  the  Bank  of  Naples,  from 
40,000,000  to  50,000,000  Hre;  for  the  Bank  of  Sicily,  from 
12,000,000  to  15,000,000  lire. 

The  Government  was  authorized  to  establish  by  royal 
decree  the  conditions  under  which  the  banks  could  dis- 
count bills  at  a  rate  inferior  to  normal.  This  pro- 
vision expressed  in  a  general  way  was  defined  by  royal 
decree  of  October  25,  1895,  which  stipulated  that  the  banks 
of  issue,  independently  of  the  faculty  of  discounting  at  a 
rate  of  i  per  cent  below  normal  the  paper  of  the  people's 
banks  and  other  intermediary  institutions,  should  be 
allowed  also  to  discount  at  a  rate  below  normal,  bills  of 
not  more  than  three  months'  currency,  presented  and 
guaranteed  b}^  banking  and  commercial  firms  of  the  first 
order.  This  faculty  was  subject  to  the  condition  of  keep- 
ing the  circulation  within  the  normal  limit.  The  minimum 
rate  of  discount  was  to  be  fixed  ever}^  three  months  by  the 
decree  of  the  minister  of  the  treasury  and  could  not  go 
below  3K  per  cent. 

This  provision  which  added  another  distinction  in  the 
rate  of  discount  of  Italian  banks  has  seemed  an  Italian 
novelty  and  has  been  discussed  and  criticized  in  various 
ways  as  a  proof  of  a  lack  of  unified  standards  and  action  in 
the  delicate  instrument  of  the  rate  of  discount.  It  will  be 
timely,  therefore,  to  make  clear,  first  of  all,  that  it  is  not 
in  the  least  a  question  of  an  Italian  novelty,  since  other 
foreign  banks  of  issue,  including  the  Imperial  Bank  of 
Germany  and  the  Bank  of  England,  are  in  the  habit  of  dis- 
counting or  buying  (a  difference  in  form  which  does  not 
change  the  substance)  bills  of  exchange  at  a  rate  different 
from  the  normal  or  official  one.     In  what  particularly 


145 


National     Monetary     Commission 

concerns  Italy  it  must  be  remembered  that  the  variation 
in  the  value  of  money  from  region  to  region  is  more  notice- 
able than  in  other  countries;  hence  the  official  rate  of  5 
per  cent,  which  represents  an  average  price  of  money  in  the 
greater  part  of  southern  Italy,  a  region  less  fully  provided 
with  available  capital,  proves  in  normal  times  high  in 
central  Italy  and  even  higher  in  northern  Italy.  Besides, 
in  Italy  as  in  other  countries,  there  may  be  in  one  single 
province,  and  even  in  one  single  city,  a  difference  in  the 
value  of  the  bills  of  exchange  tendered  and  worthy  of 
being  admitted  to  discount,  a  difference  which  justifies 
a  diversity  in  treatment. 

But  the  provisions  mentioned  above  with  regard  to  the 
rate  of  discount  were  in  a  special  way  justified  at  the 
time  when  they  were  decided  on  by  the  conditions  of  the 
discount  operations  of  the  banks  of  issue,  since  it  would 
not  have  been  reasonable  to  treat  in  the  same  way  clients 
who  presented  real  commercial  paper,  payable  on  ma- 
turity, and  those  to  whom  it  was  necessary  to  grant  de- 
lays and  renewals  for  the  payment  of  their  debts. 

Another  important  modification  of  the  law  of  August 
10,  1893,  was  made  by  the  law  of  August  8,  1895,  with 
regard  to  the  time  assigned  the  banks  for  the  liquidation 
of  operations  not  in  liquid  form  or  contrary  to  the  law, 
which  was  increased  from  ten  to  fifteen  years.  In  con- 
sequence it  remained  established  that  in  each  three  years 
the  banks  would  have  to  liquidate  a  fifth  of  the  opera- 
tions; and  it  was  correspondingly  stipulated  that  the  ex- 
traordinary inspection  of  these  banks  should  be  made 
every  three  years. 


146 


The      Banks      of     Issue      in      Italy 

This  important  and  substantial  modification  of  the  law 
of  August  lo,  1893,  was  made  advisable  by  the  necessity 
of  not  placing  the  banks  of  issue  in  a  condition  of  mani- 
fest inferiority  in  comparison  with  the  market,  which 
might  be  able  to  dictate  its  own  conditions  to  the  banks, 
profiting  by  the  peremptory  necessity  they  were  under  of 
liquidating  an  enormous  mass  of  intricate  operations  not 
in  conformity  to  the  law.  With  regard  particularly  to 
the  liquidation  of  operations  where  it  was  necessary  to 
sell  the  real  property  that  stood  as  guaranty,  the  period 
of  ten  years  seemed  too  short,  especially  as  the  real  estate 
market  still  remained  inactive  and  did  not  attract  capital- 
ists desirous  of  getting  a  suitable  return  for  their  money, 
which  could  not  be  had  from  houses,  as  they  were  still 
more  plentiful  than  necessary. 

And  it  was  also  considered  that  in  offering  the  market 
a  great  quantity  of  real  estate  the  conditions  of  real  prop- 
erty, already  depressed,  would  be  still  more  aggravated, 
causing  by  reflex  a  disorder  of  the  public  economy,  espe- 
cially in  the  capital  of  the  Kingdom  and  in  other  cities  in 
which  the  building  crisis  had  assumed  a  somewhat  serious 
character. 

It  was  necessary,  therefore,  to  give  a  longer  time  to 
allow  the  banks  to  free  themselves  gradually  from  real 
estate,  without  yielding  to  the  exaggerated,  usurious  de- 
mands of  the  capitahsts,  who  wanted  to  buy  for  half  price, 
or  even  less.  And  it  was  greatly  to  the  credit  of  Signor 
Sonnino,  a  long-time  partisan  of  the  energetic  and  violent 
cure  of  the  banking  evil  from  which  the  country  was  suf- 
fering, that  he  recognized,  in  the  face  of  the  true  situation 


147 


National     Monetary     Commission 

and  its  inseparable  exigencies,  the  advisability  of  a  gradual 
remedy,  which  ended,  as  we  shall  see,  by  giving  unhoped- 
for results. 

By  the  same  law  of  August  8,  1895,  were  granted  vari- 
ous diminutions  of  fees  for  registration  of  deeds  in  buying 
and  selling  real  estate,  conveyances  of  mortgage  loans,  and 
other  operations  of  liquidation,  for  the  purpose  of  facili- 
tating realization  on  the  intricate  operations  of  the  banks ; 
and  it  was  stipulated  besides,  to  facilitate  the  liquidation 
of  the  realty  credit  branches  of  the  banks  and  to  straighten 
out  the  relations  between  the  two. 

In  consequence  of  the  substantial  changes  made  in  the 
law  of  August  10,  1893,  the  statutes  of  the  banks  of  Italy, 
Naples,  and  Sicily  were  also  modified. 


148 


Chapter  XI. 

THE  MILITARY  DISASTER  IN  AFRICA  AND  ITS  CONSEQUENCES — 
THE  RUDINI  MINISTRY — NEW  BANKING  ACT  PROPOSED  BY 
MINISTER    IvUZZATTl. 

The  military  disaster  of  Adowa,  in  which  the  ItaHan 
forces  were  wiped  out  after  being  surrounded  and  van- 
quished by  the  whole  Ab3^ssinian  army,  was  the  occasion 
on  March  i,  1896,  of  the  downfall  of  the  Crispi  Ministry, 
which  was  succeeded  by  a  new  Rudini  Ministry,  whose 
minister  of  the  treasury  was  Signor  Colombo.  The  lat- 
ter recognized  at  the  very  outset  the  urgent  necessity  of 
a  loan  to  meet  the  expenses  of  the  African  war,  a  loan 
which  was  issued  for  132,000,000  lire.  Meanwhile  the 
African  disaster  arrested  the  improvement  that  the  work 
of  Minister  Sonnino  had  brought  about  in  the  financial  and 
economic  situation  of  Italy.  Italian  rentes  declined  at 
Paris  from  a  maxinmm  quotation  of  97.33  to  a  minimum 
of  86.25  and  exchange  went  up  from  104.50  to  11 2.62. 

This  turn  for  the  worse  made  clear  once  more  that  the 
exchange  rate,  especially  in  debtor  countries  with  abnormal 
finances,  does  not  depend  simply  upon  the  conditions  of 
the  paper  currency.  In  fact,  the  currency,  by  the  gradual 
liquidation  of  heavy  operations,  was  continually  decreas- 
ing in  quantity  and  growing  better  in  quality;  the  cur- 
rency was  also  growing  better  by  the  increase  of  the 
metalHc  reserve  which  amounted  in  1896  to  47  per  cent 
of  the  notes  against  32  per  cent  in  1893  and  exerted  a 
favorable  influence  on  exchange  which  had  gone  down 
from   116  to   104.     In  spite  of  this,  a  military  incident 

149 


National     Monetary     Commission 


entirely  foreign  to  the  conditions  of  the  banks  and  the  cir- 
culation was  sufficient  to  make  exchange  go  up  again  to 
112.62,  through  the  decline  of  Italian  rentes  abroad  and 
their  return  to  Italy. 

Meanwhile  a  grave  dissension  which  had  broken  out  in 
the  Rudini  Ministry  with  regard  to  military  expenditures 
occasioned  the  resignation  of  the  minister  of  the  treasury, 
Colombo,  and  others.  Signor  Luzzatti  returned  then  to 
the  direction  of  the  treasury  and  took  up  afresh  the  ex- 
amination of  the  problem  of  the  currency  and  the  banks, 
in  whose  situation  various  points  were  gradually  being 
cleared  up  that  had  not  been  carefully  observed  in  the 
official  inspection  of  these  institutions. 

In  regard  especially  to  the  Bank  of  Naples,  the  situation 
had  proved  so  grave  and  tlireatening.  Minister  Luzzatti  was 
obhged  to  declare,  as  to  require  urgent  extraordinary  pro- 
visions. 

Signor  Luzzatti  was  also  led  to  resume  the  examina- 
tion of  the  banking  problem  by  the  consideration  of  the 
grave  responsibility  assumed  by  the  State  in  the  matter 
of  the  paper  currency  on  which  he  had  conferred  legal 
currency,  thus  obliging  the  citizens  to  accept  the  notes  of 
the  banks.  The  case  of  the  Banca  Romana  was  too  recent 
and  too  serious  for  this  problem  not  to  demand  profound 
consideration  and  the  suggestion  of  provisions  directed 
toward  guarding  both  the  pubHc  interest  and  that  of 
the  State. 

But  besides  saving  the  Bank  of  Naples  from  imminent 
ruin  and  assuring  the  guaranty  of  the  bank  notes,  the  min- 
ister of  the  treasury  aimed  at  making  possible  a  more 


150 


The      Banks      of     Issue      in      Italy 

speedy  liquidation  of  old  operations  not  realized  on  or  con- 
trary to  the  law. 

Guided  by  these  standards  and  keeping  in  view  the  pur- 
poses mentioned  above,  the  minister  of  the  treasury  pre- 
sented resolutions  which  because  of  urgency  were  issued 
by  royal  decree,  and  afterwards  approved  in  a  provisional 
way  by  the  law  of  January  17,  1897,  and  definitely  sanc- 
tioned by  the  law  of  March  3,  1898,  by  which  were  modi- 
fied and  adapted  several  of  the  articles  contained  in  the 
royal  decrees  and  in  the  law  of  provisional  application. 
Passing  over  the  articles  in  detail,  several  of  which  it  was 
not  considered  necessary  to  put  into  effect,  it  will  be  help- 
ful to  examine  the  more  important  ones  which  caused 
a  noticeable  modification  of  the  regime  established  by 
the  preceding  laws. 

To  make  sure  of  the  full  guaranty  of  notes  the  law  pro- 
vided that  the  banks  of  issue  should  put  aside,  subject  to 
the  inspection  and  control  of  the  ministry  of  the  treasury, 
a  metallic  reserve,  comprising  in  this  the  part  employed 
in  discounts  of  foreign  bills  of  exchange  and  foreign  treas- 
ury bonds,  and  in  foreign  credits  for  the  minimum  amount, 
irreducible,  of  300,000,000  lire  for  the  Bank  of  Italy, 
90,500,000  lire  for  the  Bank  of  Naples,  and  21,000,000 
lire  for  the  Bank  of  Sicily. 

The  metallic  reserve  could  not  be  diminished  even  in 
case  it  should  happen,  as  a  result  of  the  reduction  of  the 
circulation,  that  it  represented  more  than  40  per  cent  of 
the  circulation,  and  was  to  rest  as  guaranty  for  a  corre- 
sponding amount  of  notes.  For  the  part  of  circulation  not 
covered  by  the  aforesaid  reserves,  the  holders  of  notes  had 


151 


National    Monetary     Commission 

a  claim  on  the  other  gold  and  silver  specie  belonging  to  the 
banks,  having  deducted  their  part  to  be  left  as  a  guaranty 
for  sight  liabilities  to  the  amount  of  40  per  cent ;  on  Italian 
treasury  bonds  or  other  Italian  state  securities  or  secur- 
ities guaranteed  by  the  state,  including  for  the  Bank  of 
Italy,  the  sums  set  aside  for  the  liquidation  of  the  Banca 
Romaiia;  on  foreign  bills  of  exchange  not  included  in  the 
discounts  available  for  the  metallic  reserve;  on  loans  on 
collateral ;  on  domestic  liquid  discounts.  For  the  Bank  of 
Naples  were  included  also  the  state  securities  comprised 
in  the  metallic  reserv^e,  of  which  we  shall  speak  later,  and 
temporarily  the  amount  of  the  credit  of  the  bank  to  its 
own  credit  foncier  administration.  For  the  further  pro- 
tection of  holders  of  bank  notes  the  banks  were  forbidden 
to  engage  in  granting  sureties. 

As  a  result  of  this  provision,  there  were  tied  up 
411,500,000  lire  of  metallic  reserve,  or  its  equivalent, 
representing  48  per  cent  of  the  minimum  total  of 
864,000,000  lire,  the  amount  to  which  the  banking  cur- 
rency was  required  gradual!)'  to  decrease,  according  to  the 
law.  At  the  same  time  the  law  was  abrogated  with  re- 
gard to  the  tying  up  of  200,000,000  lire  of  metallic  reserve, 
in  exchange  for  which  the  State  could  issue  an  equal  amount 
of  its  own  notes.  The  maximum  total  of  these  notes  was 
limited  to  600,000,000  lire,  and  the  total  remained  fixed  at 
125,000,000  lire  of  loans  that  the  Bank  of  Italy  and  the 
Bank  of  Sicily  were  to  make  the  treasury,  1 15,000,000  and 
10,000,000  lire,  respectively,  the  Bank  of  Naples  being 
excluded  from  the  necessity  of  making  loans  to  the 
treasury. 


15^ 


The      Banks      of     Issue      in      Italy 

With  regard  to  the  provisions  intended  to  hasten  the 
Uquidation  of  operations  not  in  hquid  form  or  not  in 
conformity  to  the  law,  it  was  further  stipulated  that  the 
gradual  diminution  of  the  normal  circulation  guaranteed 
by  the  reserve  of  40  per  cent  should  be  anticipated,  so  that 
the  Bank  of  Italy,  which  was  to  reduce  it  by  34,000,000  lire 
in  1897,  should  reach  the  minimum  limit  of  630,000,000 
lire  in  1905  instead  of  1908;  the  Bank  of  Naples  would 
reach  that  of  190,000,000  lire  in  1906  and  the  Bank  of 
Sicily  that  of  44,000,000  lire  in  the  same  year. 

To  facilitate  and  hasten  the  liquidation  of  old  oper- 
ations, Signor  Luzzatti,  although  leaving  unchanged  the 
provisions  of  the  preceding  law  in  as  far  as  they  set  forth 
the  obligation  of  the  banks  concerning  the  length  of 
time  in  which  the  said  liquidation  was  to  be  accomplished, 
evolved  a  plan  based  on  the  idea  of  the  intervention  of  the 
State  in  favor  of  such  banks  as  should  give  more  active 
and  successful  attention  to  attaining  the  desired  end. 
And  since  among  the  operations  to  be  liquidated  there 
were  several  guaranteed  also  by  public  securities  not 
admitted  by  law,  he  proposed  that  these  operations 
should  be  considered  liquidated  whenever  the  bank  had 
sold  the  securities  and  invested  the  proceeds  in  state 
securities  or  securities  guaranteed  by  the  State. 

For  the  other  operations  to  be  liquidated,  provision 
was  made  to  compensate  such  banks  as  had  suc- 
ceeded at  given  times  in  liquidating  certain  sums  beyond 
the  required  amount,  by  giving  them  the  privilege  of 
investing  in  treasury  notes  up  to  a  stated  limit,  or  em- 
ploying abroad  a  part  of  the  metallic  reserve  in  addition 
to  the  amount  permitted  by  the  preexisting  lavv^,  the  pro- 


153 


National     Monetary     Commission 

portion  being  increased  from  7  per  cent  to  1 1  per  cent ;  or 
in  case  the  minister  of  the  treasury  should  not  think  best, 
for  considerations  of  a  monetary  nature,  to  allow  further 
em.ployment  of  the  metallic  reserve,  the  banks  were 
rewarded  by  a  discount  up  to  a  fixed  amount  of  the 
tax  on  circulation;  and  finally,  by  being  allowed  a  gradual 
reduction  of  the  said  tax  on  circulation  from  i  lira  to 
50,  25,  and  10  centesimi  per  cent. 

Beginning  with  the  year  in  which  the  tax  was  reduced 
to  this  last  rate,  the  State  was  to  share  the  profits  of  the 
banks  of  issue,  at  the  ratio  of  one-third  of  the  profits 
between  5  and  6  per  cent  on  the  paid-up  capital,  for 
the  Bank  of  Italy,  and  the  free  capital  and  ordinary 
statutory  reserve  for  the  Bank  of  Naples  and  the  Bank 
of  Sicily,  and  one-half  of  the  profits  in  excess  of  6  per  cent 
for  the  three  banks. 

Other  provisions  granted  for  a  longer  period  the  reduc- 
tion of  taxes  and  supertaxes  on  conveyances  of  property, 
purchases  afnd  sales  real  estate,  transfers  of  credits  and 
conveyances  at  the  banks  of  issue  of  the  real  estate 
adjudged  to  their  respective  credit  foncier  departments. 

These  provisions,  intended  to  facilitate  and  hasten  the 
liquidation  of  the  burdensome  inheritance  of  the  past, 
were,  like  the  others  contained  in  the  preceding  laws,  in- 
spired by  a  lofty  sentiment  of  justice,  inasmuch  as  the 
Government  wished  to  acknowledge  by  them  that  the 
State  had  had  its  share  of  responsibility  in  the  banking 
ruin.  The  fact  is  that  this  very  banking  ruin  saved  the 
country,  at  a  most  difficult  moment,  even  greater  disasters. 


154 


The     Banks     of     Issue     in     Italy 

But  in  order  to  make  easier  the  attainment  of  the  ends 
at  which  the  Government  was  aiming,  it  was  needful  to 
provide  again  to  regulate  the  relations  of  the  banks  of 
issue  with  their  respective  realty  credit  branches  in  liquida- 
tion, clearly  separating  the  two  administrations.  It  has 
already  been  seen  that  the  credit  of  the  realty  branch 
of  the  Bank  of  Italy  amounted  to  more  than  49,000,000 
lire;  and  we  have  briefly  outlined  the  provisions  taken 
for  the  systematization  of  this  account  current  and  the 
satisfactory  results  obtained.  We  should  add  here  that 
the  Bank  of  Naples  and  the  Bank  of  Sicily  had,  respect- 
ively, accounts  of  46,000,000  lire  and  of  2,500,000  lire 
against  their  realty  credit  branches.  There  were  in  all 
about  98,000,000  lire  of  credit  foncier  deficits  in  liquida- 
tion which  were  burdening  the  institutions  of  issue  and 
the  circulation,  and  for  which  it  was  necessary  to  provide  to 
prevent  the  situation  from  getting  worse  in  this  particular 
respect. 

As  for  the  Bank  of  Italy,  it  was  agreed  that  it  should 
deduct  30,000,000  lire  from  the  valuation  of  its  own 
capital,  reducing  it  to  240,000,000  lire  nominal  with 
180,000,000  lire  paid  up;  and  that,  having  closed  the 
account  current  by  the  transfer  to  the  bank  of  property  and 
securities  belonging  to  its  realty  credit  branch,  the  bank 
could  make  loans  to  it  on  State  securities  or  on  securities 
guaranteed  by  the  State  at  an  interest  not  lower  than  3.50 
per  cent.  The  faculty  was  given  to  the  credit  foncier  to 
maintain  a  constant  circulation  of  realty  bonds  to  the 
maximum  amount  of  220,000,000  lire,  with  the  creation  of 
new  issues  of  bonds  exclusively  on  the  real  estate  holdings 


155 


National     Monetary     Commission 

of  the  bank;  the  bank  in  turn  could  obtain  loans  on  its 
property  also  from  other  credit  foncier  institutions. 

The  surplus  of  the  credit  foncier  was  to  be  maintained 
in  the  constant  ratio  of  one-tenth  of  the  effective  circu- 
lation of  the  realty  bonds.  The  bank  could  liquidate 
on  account  of  the  credit  foncier  the  excess  of  the  surplus 
beyond  the  tenth  of  the  total  realty  bonds  outstand- 
ing. But  the  bank  never  availed  itself  of  this  power  and 
left  the  fund  invariably  at  the  sum  of  30,000,000  lire, 
which  at  the  end  of  1908  exceeded  by  about  19,000,000 
lire  the  amount  required  by  the  ratio  of  10  per  cent  of 
the  realty  bonds  in  circulation,  which  amounted  to 
111,081,500  lire. 

Besides  the  ordinary  surplus  prescribed  by  the  law,  the 
credit  foncier  of  the  bank  was  obliged  to  deduct  from 
the  annual  profits  300,000  lire  to  constitute,  together  with 
the  interest  accrued,  an  extraordinary  surplus  to  be  in 
vested  in  State  securities  or  securities  guaranteed  b}^  the 
State.  By  the  law  of  July  7,  1905,  concerning  provisions 
in  favor  of  borrowers  of  the  credit  foncier  of  the  former 
Banca  Nazionale  and  the  Bank  of  Sicily,  the  requirement 
of  keeping  the  above  surplus,  which  was  recognized  as 
unnecessary,  was  removed. 

And  since  the  Bank  of  Italy,  along  with  the  obligations 
imposed  b}^  the  law,  also  had  the  rights  that  came  to  it 
from  the  agreement  established  in  the  treaty  with  the 
Government  on  October  30,  1894,  which  had  put  upon  it 
the  burden  of  the  liquidation  of  the  Banca  Romana,  a 
new  agreement  between  the  Government  and  the  bank 
was  needed  to  modify  the  provisions  then  in  force,  also 
because  among  the  new  provisions  there  was,  as  we  have 


i.=i6 


The     Banks     of     Issue     in      Italy 

seen,  the  reduction  of  the  capital,  for  which  was  needed 
the  approval  of  the  meeting  of  the  shareholders.  The 
provisions  as  a  whole  were,  however,  granted  in  an  agree- 
ment made  November  28  of  the  year  1896,  which  was 
approved  by  the  law  of  March  3,  1898,  and  ratified,  as  to 
the  matter  of  the  reduction  of  capital,  by  the  shareholders' 
meeting  held  March  28,  1899,  in  which  the  statutes  of  the 
bank  were  accordingly  modified. 

For  the  Bank  of  Sicily  provisions  were  made  almost 
analogous  to  those  for  the  Bank  of  Italy,  aiming  at  closing 
the  account  current  with  its  realty  credit  branch.  To 
this  effect  it  was  stipulated  that  2,000,000  lire  should 
be  deducted  from  the  ordinary  reserve  of  the  bank  and 
charged  to  loss  by  unrealizable  real  estate  operations. 

The  situation  that  presented  itself  in  the  matter  of  the 
Bank  of  Naples  was  more  difficult,  considering  the  gravity 
of  the  condition  of  its  realty  credit  branch,  which  was  a 
serious  menace  to  the  bank,  itself  already  in  a  sufficiently 
precarious  condition.  The  Government,  anxious  as  to 
the  consequences  that  would  follow  the  failure  of  this 
ancient  institution,  especially  in  southern  Italy,  decided 
to  take  exceptional  provisions,  and  to  cause  the  State  to 
intervene  directly  under  the  form  of  suretyship  and  fiscal 
reliefs. 

With  regard  to  the  credit  foncier  it  was  in  fact  stipu- 
lated that  its  certificates,  which  bore  interest  at  the  rate 
of  5  per  cent  gross,  should  be  withdrawn  and  replaced 
by  others  bearing  3.50  per  cent  net  of  any  taxation. 
The  State  guaranteed  the  payment  of  interest  on  the 
certificates  and  their  amortizement.  The  debt  repre- 
sented   by    the    realty    bonds    outstanding    would    be 


157 


National    Monetary     Commission 

amortized  in  fifty  years,  through  a  constant  annual  pay- 
ment, including  the  interest  at  the  rate  of  3.50  per  cent. 

The  realty  bonds  were  to  be  cancelled  according  to 
the  conditions  established  beforehand,  except  for  the  fa- 
cilities granted  by  the  prolongation  of  the  terms,  in  con- 
formity to  the  law.  The  bonds  of  the  credit  foncier 
should  be  accepted  in  payment  of  loans  at  a  value  to  be 
determined  every  six  months,  on  the  basis  of  the  average 
price  for  the  preceding  six  months  in  the  principal  stock 
exchanges  of  the  country,  increased  by  50  lire.  This  was 
to  avoid  artificial  speculation  in  prices  on  the  part  of  bor- 
rowers. If  the  average  value  ascertained  should  be  over 
450  lire,  the  bonds  would  be  accepted  at  par.  The  ex- 
cess resulting  between  the  payments  made  by  borrowers 
in  reduction  of  the  capital  debt  of  the  loan,  and  the  quota 
of  amortization  included  in  the  constant  annuity  to  be 
used  for  cancelling  the  bonds  in  fifty  years,  v/as  to  be 
invested,  up  to  the  time  of  total  cancelling  of  the  bonds, 
in  State  securities  or  securities  guaranteed  by  the  State, 
and  set  aside  in  a  special  fund  destined  for  the  payment  of 
the  interest  and  reimbursing  such  bonds  as  still  remained 
in  circulation  after  the  cancellation  of  the  corresponding 
operations. 

In  the  law  we  are  now  examining,  additional  provisions 
were  made  regarding  the  closing  of  the  account  current 
of  the  bank  of  Naples  with  its  credit  foncier  and  the  reim- 
bursing of  the  credit  of  the  bank  through  the  conveyance 
of  5,000,000  lire  worth  of  real  estate  or  mortgages,  and  by 
payment  to  the  bank  on  the  part  of  the  credit  foncier  of 
the  total  of  the  personal  property  tax  on  the  interest  of 
the  realty  bonds  and  the  tax  on  the  circulation  of  these 


158 


The      Banks      of     Issue      in      Italy 

bonds  which  were  made  good  by  the  State  in  favor  of  the 
bank.  The  sums  paid  over  to  the  bank  were  to  be  in- 
vested in  state  secm-ities  or  securities  guaranteed  by  the 
State  to  form,  with  the  accrued  interest,  a  fimd  to  serve  as 
guaranty  of  the  credit  of  the  bank  to  its  own  credit  foncier. 
For  the  remainder  stipulations  were  made  similar  to  the 
ones  established  for  the  Bank  of  Italy  and  the  Bank  of 
Sicily  to  f acihtate  the  loans  to  be  made  to  the  credit  fon- 
cier departments. 

But  the  bank  of  Naples  itself  needed  special,  urgent 
provisions  directed  to  reconstruct,  within  not  too  long  a 
time,  its  free  capital.  To  this  end  it  was  stipulated  that 
the  Bank  of  Naples  should  invest  a  sum  of  45,000,000  lire 
of  its  metallic  reserve  in  state  securities  or  securities  guar- 
anteed by  the  State;  but  to  avoid  the  ahenation  of  the 
metal  it  was  arranged  that  the  said  sum  should  be  de- 
posited in  the  coffers  of  the  state  treasury,  which  should 
become  owner  of  it,  and  pay,  in  exchange  a  like  sum  to 
the  bank  in  state  notes,  that  the  bank  should  invest  in 
state  securities  or  securities  guaranteed  by  the  State. 
However,  in  order  not  to  lessen  the  guaranty  of  the  hold- 
ers of  bank  notes  the  state  securities  were  converted  into 
registered  certificates  with  a  lien  in  their  favor.  The  in- 
terest on  the  state  securities  was  to  be  used,  from  half 
year  to  half  year,  in  restocking  the  metallic  reserve  with 
gold  specie,  through  a  gradual  restitution  of  notes  to  the 
treasury,  in  order  to  redeem  and  withdraw  a  corresponding 
sum  in  metalHc  money. 

The  operation,  begun  in  1897,  for  the  entire  sum  of 
45,000,000  lire  was  reduced  on  June  30,  1909,  to  the  sum 
of  23,277,555   lire,  with  which  the  Bank   of  Naples  had 

39781^—11 II  159 


National     Monetary     Commission 

obtained,  as  a  result   of  the  above  law,  a  reconstruction 
of  capital  amounting  to  21,722,445  lire. 

Meanwhile  the  Government,  in  order  to  assure  the 
exact,  efficacious  application  of  the  exceptional  provisions 
made  in  favor  of  the  bank  of  Naples  named  as  its  general 
director  Signor  Nicola  Miraglia,  who  was  then  deputy  to 
Parliament,  and  general  director  to  the  ministry  of  agri- 
culture, industry,  and  commerce;  a  man  of  broad  culture 
and  great  energy,  who  entirely  fulfilled  the  expectations 
of  the  Government. 


160 


Chapter  XII. 

DISORDERS  OE  1 898 — THE  COMMERCIAL  AGREEMENT  WITH 
FRANCE — EXCESS  OF  SPECULATION — NEW  IDEAS  IN  THE 
MANAGEMENT  OF  THE  BANK  OF  ITALY — NOTEWORTHY 
IMPROVEMENT    IN    THE    FINANCIAL   SITUATION. 

The  series  of  provisions  intended  to  facilitate  the  re- 
construction of  the  capital  of  the  Italian  banks  of  issue 
and  to  reform  the  currency  by  the  liquidation  of  old 
operations  not  easily  realized  on  produced  an  excellent 
impression,  but  it  could  not  give  immediate  results,  partly 
because  in  the  year  1898  there  appeared  insurrectional 
movements  in  various  parts  of  Italy,  particularly  at  Milan 
and  Apulia.  These  movements  reacted  injuriously  on 
the  financial  and  economic  conditions  of  the  country. 
Italian  rentes,  which  had  risen  gradually  again  in  Paris 
from  the  minimum  quotation  of  78,  to  which  they  had 
fallen  in  1896  as  a  result  of  the  military  disaster  in  Africa, 
to  the  maximum  quotation  of  96.65,  fell  again  to  87.45, 
and  exchange  which  in  1897  had  reached  the  minimum 
rate  of  104.35  ^^^^  to  109.60. 

The  significant  features  of  the  situation  at  that  period 
bring  clearly  into  evidence  the  damage  that  may  be 
caused  a  country  by  political  agitations  and  excessive 
speculation.  The  latter,  in  fact,  after  a  brief  period  of 
inactivity  following  the  decline  in  prices  which  came  in 


161 


National    Monetary     Commission 

1897,  as  a  result  of  the  disaster  at  Adowa,  and  in  the  be- 
ginning of  1898  because  of  insurrectional  movements, 
seemed  to  gain  fresh  vigor  and  set  to  work  with  the  in- 
tention of  making  a  prosperous  campaign  to  advance 
prices,  being  encouraged  in  a  particular  way  by  the  com- 
mercial agreement  with  France  obtained  by  the  Rudini 
ministry.  This  agreement  produced  an  excellent  im- 
pression in  the  country,  not  only  because  it  revived  trade, 
to  the  advantage  of  both  countries  and  especially  Italy, 
making  due  allowance  for  Italy's  condition  of  inferiority 
to  France,  but  also  because  it  cancelled  an  ugly  page  of 
ill  feeling  and  misunderstanding  between  the  two  sister 
nations  that  other  pages,  glorious  and  fraternal,  had 
inscribed  together  on  the  battlefield. 

Meanwhile,  however,  the  Rudini  ministry,  weakened 
by  events  that  took  place  in  the  country  and  vigorously 
attacked  by  the  constitutional  opposition  which  had  found 
an  alhed  opponent  in  the  extreme  left,  enraged  as  it  was 
by  the  violently  energetic  measures  with  which  the  inin- 
istry  had  conquered  the  revolt  and  restored  order,  handed 
in  its  resignation  without  even  waiting  for  a  vote  of  the 
Chamber. 

The  excessive  impetus  given  to  affairs  of  a  speculative 
nature  caused  great  harm,  thus  retarding  the  benefits 
of  the  commercial  Franco-Italian  agreement,  which 
became  then  very  evident  in  the  field  of  industry. 

The  commercial  movement  of  Italy,  which  had  been 
represented  in  the  year  1897  by  a  sum  of  2,383,000,000  lire, 
exports  and  imports  together,  rose  to  2,617,000,000  lire 


162 


The      Banks      of     Issue      in      Italy 

in  1898  and  to  2,938,cxx),ooo  lire  in  1899.  The  excessive 
activity  of  speculation  is  clearly  shown  by  the  following 
variations  in  the  prices  of  the  principal  securities: 


Banca  d'ltalia 

Banca  Commerciale  .  .  .  . 

Credito  Italiano 

Ferrovie  Meridionali  "  .  . 
Ferrovie  Mediterranee  ^ 

Acciaierie  Terni  c 

Raffineria  Lig.  Lomb.  «* 
Edison  Co 


1898. 

1899. 

1.084 

782 

650 

826 

508 

717 

712 

789 

512 

613 

419 

1. 815 

320 

486 

390 

4SO 

Differ- 
ence. 


302 

176 

209 

77 

lOI 

+  1,396 
-f  166 
■f  60 


+ 


a  Southern  railroads. 

i»  Mediterranean  railroads. 


c  Temi  Steel  Works. 

^  Ligurian  and  Lombardian  refinery. 


With  regard  to  the  currency  it  is  to  be  said  that  the 
progressive  improvement  which  had  been  started  by  legis- 
lative provisions  not  only  suffered  a  check,  but  even 
showed  a  backward  movement.  The  many  needs  created 
by  greater  activity,  united  to  those  of  speculation,  made 
an  increase  in  the  paper  of  the  banks,  loans  and  discounts 
together,  from  369,000,000  Hre  in  1897  to  538,000,000  lire 
in  1889. 

The  increase  from  50,000,000  lire  to  116,000,000  lire 
in  loan  operations  clearly  indicates  the  intervention  of 
the  speculative  factor. 

Corresponding  to  the  increase  of  operations,  the  circu- 
lation advanced  from  1,086,000,000  lire  to  1,180,000,000 
lire,  while  the  metallic  reserve  to  cover  the  notes  fell  off 
22,000,000  lire,  declining  from  538,000,000  lire  to  516,- 
000,000  lire  so  that  the  proportion  between  the  reserve 
and  the  notes  went  down  from  49  per  cent  to  43  per  cent. 


163 


National     Monetary     Commission 

In  Parliament  and  the  press  a  lively  debate  was  started 
on  the  condition  of  the  market  and  the  inefficacious 
action  of  the  banks  of  issue  in  the  face  of  it,  to  say  noth- 
ing of  the  encouragement  speculation  had  received  from 
the  promptness  with  which  these  institutions  had  fur- 
nished it  superabundant  aid.  The  Government  inter- 
vened in  the  question,  and  having  subjected  the  paper  of 
the  Bank  of  Italy  to  an  examination,  expressed  the  opin- 
ion that  certain  operations  carried  on  by  it  under  the 
form  of  discount  of  bills  not  having  a  commercial  origin 
and  guaranteed  by  securities  were  not  in  accordance 
with  the  law  and  requested  that  all  such  operations  be 
eliminated. 

The  bank  provided,  therefore,  for  liquidating  the  con- 
tested operations  or  for  transferring  them  into  others, 
which  should  answer  in  substance  and  form  to  the  require- 
ments of  the  law.  The  loans  of  the  three  institutions  fell 
in  1900  from  116,000,000  to  71,000,000  lire.  The  events 
of  this  period  showed  that  rigid  and  severe  provisions  by 
law,  statute,  or  regulation  are  not  always  enough  to  give 
a  sound  direction  to  the  institutions  of  issue. 

In  the  year  1900  the  general  director  of  the  Bank  of 
Italy,  Signor  Giuseppe  Marchiori,  died.  In  1894  ^^^  ^^.d 
succeeded  the  general  director  of  the  Banca  Nazionale  in 
the  direction  of  the  new  Bank  of  Italy,  to  which  he  had 
rendered  useful  service.  By  unanimous  consent  of  the 
superior  council,  approved  by  the  Government,  Prof. 
Bonaldo  Stringher,  a  deputy  to  Parliament  and  under- 
secretary of  State  at  the  treastiry,  was  elected  general 
director. 


164 


The      Banks      of     Issue      in      Italy 

Since  a  change  of  method  then  took  place  in  the  gov- 
ernment of  the  Bank  of  Italy,  it  seems  a  fitting  moment 
to  examine  the  conditions  of  this  bank  and  of  the  two 
others  at  this  time  with  regard  specially  to  the  liquidation 
of  old  operations  difficult  to  realize  on. 

And  it  must  be  noted  here  that  these  operations 
amounted  to  much  larger  sums  than  those  discovered  by 
the  inspection  made  in  1894. 

Those  of  the  Bank  of  Italy,  placed  by  the  inspectors  at 
the  sum  of  449,420,000  lire,  rose  to  519,665,000  through  a 
new  audit  made  by  agreement  between  the  minister  of 
the  treasury  and  the  bank,  by  putting  in  order  the 
account  current  of  the  credit  foncier  as  to  expenses,  pur- 
chases of  credits,  and  improvements  on  real  estate.  At 
the  end  of  1900  the  operations  remaining  to  be  liquidated 
amounted  to  245,000,000  lire;  therefore  274,400,000  lire 
were  already  liquidated,  composed  of  56,700,000  lire  in 
payments  on  bills  of  exchange,  96,300,000  lire  in  payments 
on  various  credits,  36,000,000  lire  in  transfers  of  securi- 
ties not  admitted  by  law  into  others  admitted  by  law, 
and  19,300,000  lire  in  sales  of  real  estate,  making  in  all 
209,000,000  lire.  To  complete  the  sum  of  274,400,000 
lire  payment  of  30,000,000  lire  was  arranged  for,  to  be 
made  by  the  shareholders  in  conformity  to  the  agreement 
of  1894;  30,000,000  lire  was  deducted  from  the  capital 
established  by  the  agreement  of  1896,  and  5,300,000  lire 
were  raised  on  a  loan  stipulated  with  the  Istituto  Italiano 
di  Credito  Fondiario.  It  was  then  remarked  that  the 
effective  liquidation  was  represented  by  172,000,000  lire 
collected   in  payment  of   bills  of   exchange  and   credits 


i6s 


National     Monetary     Commission 

for  a  total  of  153,000,000  lire,  and  of  only  19,300,000 
lire  collected  for  the  sale  of  real  estate;  it  was  said  that 
this  result  was  attained  with  comparative  ease,  because 
the  bank  had  been  able  to  liquidate  the  part  of  its  assets 
that  was  easiest  to  realize  on.  It  was  therefore  concluded 
that  the  greatest  effort  was  already  made  and  that 
the  bank  would  not  succeed  in  freeing  itself  from  the 
heavier  burden  that  still  remained. 

It  should  be  said  that  such  a  conclusion  was  not  sin- 
cerely felt  and  impartially  expressed.  It  was  intended  to 
impress  public  opinion  and  to  exert  pressure  on  the  Gov- 
ernment and  the  bank  to  make  the  latter  sell  off  in  a 
block  its  real  estate,  giving  it  at  a  low  price  to  a  company 
that  was  to  be  organized. 

Taken  as  a  whole,  the  operations  not  realized  on  of  the 
three  institutions  amounted  at  the  end  of  1900  to 
373,261,839  lire. 

With  the  year  1900  there  began  in  Italy  a  period  of 
financial  solidity  and  economic  progress.  The  ponderous 
obstacles  against  excessive  expenditures  raised  by  the 
Honorables  GioHtti,  Sonnino,  and  Luzzatti;  the  determina- 
tion already  made  by  Sonnino  and  energetically  continued 
by  Luzzatti  to  cease  making  any  issues  of  bonds  so  that 
through  the  proposal  of  Signor  Luzzatti,  there  were  in- 
cluded in  ordinary  expenditures  the  expenses  for  the 
construction  of  railroads,  for  which  provision  had  been 
made  until  then  by  issuing  bonds;  the  vigorous  im- 
pulse given  to  the  industrial  movement;  and  the  right 
administration  of  the  banks  and  currency — all  these 
things  produced  a  salutary  effect  throughout  the  country. 


166 


The      Banks      of     Issue      in      Italy 

The  budget  closed  in  the  years  named  with  surpluses 
as  follows : 

Lire. 

1 899 5 , 000,  000 

19CX) 41,  000,  000 

1901 32,  000,  000 

1902 69, 000,  000 

1903 34, 000,  000 

1904 48,  000,  000 

1905 63,  000,  000 

The  commercial  movement  expanded  prosperously. 
From  2,938,000,000  lire  in  1899  it  rose  gradually  to 
3,795,000,000  lire  in  1905.  Exchange,  which  still  remained 
at  108.50  in  1899,  went  down  gradually  until  it  reached  in 
1902  the  rate  of  98.89,  fluctuating  a  little  above  or  a  little 
below  par  in  spite  of  the  fact  that  Italy  was  redeeming 
from  abroad  large  sums  in  government  rentes  and  other 
securities. 

All  this  showed  clearly  that  Italy  had  now  become  a 
creditor  country.  The  relatively  small  quantity  of 
Italian  securities  still  owned  abroad  were  in  the  hands  of 
capitalists  who  kept  them  as  permanent  investments,  and 
no  longer  constituted  an  uncertain  element  of  disturbance 
for  the  monetary  economy  of  the  country.  The  Paris 
Bourse,  on  which  the  whole  Italian  market  had  depended 
in  the  past,  indicated  and  still  indicates  to-day,  on  a  few 
days  of  the  week  only,  the  price  of  Italian  government 
stock,  henceforth  entirely  unspeculative.  It  had  advanced 
on  the  Paris  market  from  96.75,  the  maximum  price  of 
1899,  to  106.60,  the  maximum  price  of  1905. 

As  a  result  of  this  new  situation,  Italy,  which  was 
once  obliged  to  provide  for  payments  to  be  made  abroad, 


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National     Monetary     Commission 

on  account  of  the  State  and  the  country,  by  shipments  of 
metal  or  a  continual  stream  of  new  bond  issues,  began 
instead  to  receive  annually  important  sums  of  gold  and  sil- 
ver that  flowed  into  the  coffers  of  the  banks  of  issue,  which 
gave  bank  notes  in  exchange.  Their  metallic  reserve, 
which  amounted  to  600,000,000  lire,  of  which  61,000,000 
lire  were  a  cover  for  sight  liabilities,  went  up  at  the  end 
of  1905  to  1,076,000,000  lire,  of  which  78,000,000  lire  were 
a  cover  for  sight  liabilities.  The  circulation  increased 
from  1,180,000,000  lire  in  1899  to  1,406,000,000  lire  in 
1905,  and  the  ratio  between  the  metallic  reserve  and  the 
notes,  which  had  fallen  in  1899  to  43  per  cent,  went  up 
gradually  to  70  per  cent,  while  at  the  same  time  the  ledger 
of  discounts  and  loans  of  the  banks  of  issue,  which  was 
now  purified,  aiding  and  seconding  the  economic  earnings 
of  the  country,  increased  from  318,000,000  lire  in  1897  to 
589,000,000  lire  in  1905. 

Meanwhile  the  work  of  improvement  of  the  banks  of 
issue  was  progressing.  These  institutions  were  continu- 
ing to  liquidate  operations  not  realized  on,  and  were  pro- 
viding in  conformity  with  the  law  to  reconstitute  their 
capital.  The  activity  of  the  Bank  of  Italy  in  1900  was, 
in  this  respect,  energetic  and  profitable.  Having  pro- 
vided for  systematizing  its  relations  with  its  credit 
foncier  in  liquidation,  the  Bank,  as  we  have  seen  before, 
operated  to  good  advantage  the  conversion  of  its  realty 
bonds. 

Because  of  the  importance  it  had  for  public  interest,  as 
well  as  for  the  Bank  of  Italy  and  the  Bank  of  Naples, 
mention  should  be  made  here  of  the  agreement  entered 
into  between  the  Government  and  the  two  banks  in  order 


168 


The      Banks      of     Issue      in      Italy 

to  assure  the  completion  of  the  work  of  the  sanitation  of 
the  city  of  Naples,  an  undertaking  which  had  been  decided 
upon  after  the  outbreak  of  cholera,  which  plunged  that 
beautiful  city  into  mourning  in  the  year  1884.  The  Bank 
of  Italy  and  the  Bank  of  Naples,  which  were  largely  in- 
volved in  the  ''  Societa  per  il  Risanamento  di  Napoli,"  con- 
sented to  contribute  the  sum  of  8,000,000  lire,  of  which 
7,200,000  lire  was  furnished  by  the  former  and  800,000 
lire  by  the  latter,  while  the  State  participated  with 
7,000,000  lire.  The  sum  to  be  used  for  this  purpose  was 
to  be  taken  from  the  guaranty  funds  of  the  respective 
realty  credit  department,  to  which  it  should  be  restored 
at  the  charge  of  the  banking  administrations,  by  annual 
quotas,  during  a  period  of  twenty-five  years,  until  the 
liquidation  and  realization  of  the  credits  of  the  two  banks 
should  have  permitted  the  integral  reimbursement  of  the 
sum  still  due  the  realty  credit  department.  To  these, 
meanwhile,  the  banks  themselves  ceded  for  their  respective 
amounts  the  mortgages  already  made  out  in  their  favor 
on  the  property  of  the  Societa  per  il  Risanamento  di  Napoli. 
The  Bank  of  Italy  and  the  Bank  of  Naples  were  further 
authorized  to  make  the  Societa  del  Risanamento  loans  for 
fixed  sums  at  an  interest  of  3.50  per  cent. 

As  a  result  of  the  financial  assistance  given  toward  the 
completing  of  the  sanitation  of  Naples,  the  Bank  of  Italy 
and  the  Bank  of  Naples  were  authorized  to  deduct  from 
the  amount  of  operations  not  realized  on  that  must  be 
liquidated  within  1908,  the  respective  credits  not  liqui- 
dated against  the  Societk  del  Risanamento. 

Meanwhile,  along  with  the  improvement  of  the  financial 
conditions  of  the  State  and  the  national  economy,  improve- 

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National     Monetary     Commission 

ment  likewise  began  to  be  evident  in  the  real-estate  market, 
whether  as  a  result  of  the  gradual  increase  of  the  popula- 
tion in  Rome  and  other  centers,  or  through  a  spontaneous 
return  to  these  values  of  the  capital  which,  owing  to  the 
high  price  of  transferable  securities  and  the  expectation  of 
a  conversion  of  the  pubHc  debt,  now  considered  ripe,  was 
less  disposed  to  investment  in  these  securities.  It  was 
then  that  with  a  happy  insight  into  the  situation  which  was 
taking  shape  the  general  director  of  the  Bank  of  Italy  con- 
ceived the  plan  of  making  a  more  rapid  and  convenient 
transfer  of  the  real  estate  that  was  serving  as  a  guaranty 
for  the  operations  not  reaUzed  on,  through  conveyances 
of  property  to  building  or  construction  companies.  The 
bank  had  now  got  beyond  the  period  in  which  the  narrow 
limits  of  the  law  on  the  one  hand  and  the  depression  of  real- 
estate  values  on  the  other  placed  it  in  a  position  of  infe- 
riority toward  the  market.  The  fortunate  results  obtained 
from  the  patient  attention  given  to  its  own  building  up 
and  the  favorable  situation  in  general  had  now  placed  the 
bank  in  a  position  to  treat  on  a  basis  of  equitable  condi- 
tions. Of  the  final  result  of  the  operations  carried  through 
by  the  Bank  of  Italy  from  1900  we  shall  speak  later.  It 
is  enough  to  state  here  that  the  plan  conceived  by  its 
general  director  was  not  long  in  giving  good  results,  since 
at  the  end  of  the  year  1905  real  estate  sales  made  to 
building  and  construction  companies  already  amounted 
to  about  45,000,000  lire  and  operations  not  realized  on 
still  to  be  liquidated  amounted  to  84,369,400  lire,  about 
87,000,000  lire  having  been  made  good  with  the  fund 
put  aside  by  the  amounts  deducted  from  the  annual 
profits. 


fjo 


Chapter  XIII. 

THE  CONVERSION  OF  ITALIAN  RENTES  AND  ITS  EFFECT  ON 
THE  MONEY  MARKET — THE  CRISIS  OF  1907 — MODIFICA- 
TIONS  OF   THE   BANKING   ACT. 

As  we  have  already  seen,  public  opinion  in  Italy  now 
considered  the  market  prepared  to  make  a  conversion  of 
Italian  rentes  5  per  cent  gross  (4  per  cent  net) ,  especially 
as  a  former  conversion  of  domestic  4^2  per  cents  to  3  J^  per 
cents  net  had  been  successful.  And,  indeed,  with  a  finan- 
cial situation  like  that  in  Italy,  the  strength  of  which  was 
daily  increasing  through  an  uninterrupted  series  of  rela- 
tively notable  surpluses,  the  belief  did  not  appear  un- 
founded that  Italy  could  reduce  the  burden  of  interest  on 
the  great  body  of  its  public  debt  by  means  of  an  honorable 
operation  in  conversions.  Already  various  negotiations 
made  with  this  purpose  in  view  had  had  to  be  suspended, 
because  of  numerous  difficulties  of  a  monetary  or  political 
nature  arising  in  the  international  market.  The  war  be- 
tween Russia  and  Japan  kept  the  conversion  from  being 
carried  out  in  1 905 ;  but  in  the  following  year  under  the 
ministry  presided  over  by  Signor  Giolitti,  in  which  Signor 
Giuseppe  Majorana  was  minister  of  the  treasury,  the  great 
operation,  with  the  help  of  Signor  Luzzatti  and  of  the 
general  director  of  the  Bank  of  Italy,  was  accomplished  in 
a  most  fortunate  manner,  thanks  especially  to  the  prompt 
cooperation  of  French  high  finance,  which  wished  to  give 
Italy  a  mark  of  special  sympathy. 

The  conversion  was  made  by  the  reduction  of  the  inter- 
est from  4  per  cent  net  to  3^  per  cent  net,  with  a  further 


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National     Monetary     Commission 

reduction  to  3K  per  cent  after  five  years.  The  result 
of  the  operation  may  be  summed  up  as  follows:  Out  of  a 
sum  of  8,100,434,840  lire  the  reimbursement  at  par  was 
asked  for  4,689,700  lire,  of  which  1,661,900  lire  were 
domestic  and  3,027,800  lire  foreign.  It  may  indeed  be 
asserted  that  never  in  any  country  has  an  operation  of 
conversion  of  this  importance  had  such  a  brilliant  success. 

But  the  legitimate  satisfaction  of  Italy  in  this  auspicious 
event,  which  crowned  a  long  series  of  sacrifices  and  of 
sound  and  fruitful  activity  and  economy,  was  to  be  in  a 
short  time,  partly  because  of  this  very  event,  tempered 
by  the  arrival  of  a  speculative  crisis  which  produced 
a  serious  disturbance  of  the  money  market,  with  an 
inevitable  reflex  action  on  the  general  conditions  of  the 
economic  structure.  Already,  beginning  with  1905,  the 
improved  financial  conditions  of  the  State  and  the  eco- 
nomic conditions  of  the  country  had  provoked  a  speculation 
for  the  rise  of  all  securities,  which  was  pointed  out  by  a 
few  unheeded  observers  as  extremely  exaggerated  and 
dangerous.  The  price  reached  by  the  aggregate  of  Italian 
securities  represented  a  70  per  cent  increase  over  their 
nominal  value,  without,  of  course,  any  justification  for 
this  increase  by  a  corresponding  increase  in  prosperity  in 
banking,  industrial,  and  commercial  undertakings,  and  by 
larger  dividends. 

On  the  contrary  the  securities  that  rose  the  highest  in 
price  were  precisely  those  of  companies  recently  created, 
which  had  not  yet  distributed  any  dividends,  and  also 
those  of  companies  which  had  distributed  dividends  corre- 
sponding to  2  or  3  per  cent  of  the  current  price  of  the 
shares.     The  watchword,  faithfully  passed  on  by  the  body 


172 


The      Banks      of     Issue      in      Italy 

of  speculators,  was  that  they  must  discount  in  good  season 
a  brilliant  future  of  economic  prosperity. 

In  the  autumn  of  this  same  year  of  1905  there  was  a 
brief  pause  that  occasioned  a  decline  in  prices;  however, 
speculation  for  the  rise  was  not  abashed,  but  on  the  con- 
trary showed  the  inclination  to  resume  with  greater  eager- 
ness its  place  in  the  fight,  being  encouraged  still  more  to 
continue  in  its  work  by  the  negotiations  already  mentioned 
for  the  conversion  of  government  stock,  which  was  regarded 
as  imminent  and  which  would  cause  new  currents  of  capital 
to  converge  on  banking,  industrial,  and  commercial  secu- 
rities. The  quotation  on  the  stock  exchange  of  these 
securities,  which  amounted  in  1904  to  2,420,000,000  lire 
had  risen  in  1905  to  3,280,000,000  lire  and  in  1906  to 
3,720,000,000  lire,  with  an  increase  in  the  three  years  of 
1,300,000,000  lire,  or  about  58  per  cent,  while  the  paid-up 
capital  of  the  joint-stock  companies  had  increased  merely 
for  the  greater  part  by  the  formation  of  new  companies 
by  753,000,000  lire,  advancing  from  1,585,000,000  lire  to 
2,338,000,000  lire. 

These  figures  alone  are  enough  to  give  a  clear  idea  of  the 
degree  of  speculative  inflation  which  the  Italian  market 
had  reached  and  to  show  how  amply  justified  was  the  fore- 
sight that  the  edifice  artificially  reared  and  without  any 
solid  foundation  must  inevitably  collapse.  And,  indeed, 
it  would  have  collapsed  in  a  short  time  even  without  the 
crisis  that  seized  at  this  moment  the  American  market  and 
those  of  several  European  countries. 

As  it  had  always  happened  in  Italy  in  like  cases,  as 
soon  as  a  certain  stringency  in  the  money  supply  made  itself 
felt,  as  soon  as  the  higher   contango    made  speculators 


173 


National     Monetary     Commission 

feel  tardily  all  the  gravity  of  the  situation  into  which 
they  had  recklessly  plunged,  and  gave  an  inkUng  of 
imminent  danger  of  disaster,  on  all  sides  the  Govern- 
ment and  the  banks  of  issue  were  called  on  to  intervene. 
With  heedless  boldness  an  increase  of  bank  circulation 
was  called  for,  under  the  pretext  that  the  needs  of  industry 
and  commerce  required  a  larger  money  supply. 

But  the  Government  and  the  general  director  of  the 
Bank  of  Italy,  in  agreement  with  the  general  directors  of 
the  two  other  banks,  decided  that  frenzied  and  heed- 
less speculation  ought  not  to  be  subsidized,  and  that  in- 
stead it  was  desirable  to  liquidate  a  dangerous  and  unten- 
able situation,  using  at  the  same  time  all  due  precaution 
to  prevent  the  evil  from  spreading  to  sound  parts  of  the 
country  and  attacking  the  living  sources  of  industry. 
Thus,  as  soon  as  the  grave  difficulties  were  known  in 
which  the  Societa  Bancaria  Italiana  was  involved,  because 
of  the  tying  up  of  a  large  part  of  its  capital  and  serious 
and  irreparable  losses;  as  soon  as  the  panic  spread  in 
the  country  because  of  the  apprehension  that,  through 
the  swift  contagion  of  terror  it  might  be  communicated 
to  other  institutions,  the  general  director  of  the  Bank  of 
Italy  was  ready  to  intervene  to  avoid  the  disaster  that 
was  threatening.  He  consented  to  put  at  the  disposal  of 
the  Societk  Bancaria  ItaHana  the  capital  needed  to  meet 
the  pressing  necessities  of  the  situation,  and  obtained  also 
to  this  end  the  contribution  of  banks  and  bankers  who 
consented  to  furnish  a  part,  though  not  an  important 
part,  of  the  amount  needed.  The  general  director  of  the 
Bank  of  Italy  asked,  however,  that  the  administrators  of 
the  company  should  make  themselves  personally  liable; 


174 


The      Banks      of     Issue      in      Italy 

that  the  capital  of  the  company  should  be  reduced  from 
50,000,000  lire  to  20,000,000  lire  and  should  then  be 
restored  by  a  new  payment  of  20,000,000  lire;  in  this  way 
the  capital  was  to  be  reduced  to  40,000,000  lire. 

The  immediate  arrangement  of  the  position  of  the 
Societa  Bancaria,  which  as  a  result  of  this  energetic  action 
found  itself  in  a  most  solid  situation,  put  an  end  to  the 
alarm  in  the  country.  The  Bank  of  Italy  had  giA^en  the 
vSocieta  a  total  credit  of  42,000,000  lire.  At  the  end  of 
May,  1909,  the  credit  was  reduced  to  about  5,000,000 
lire  through  discount  of  commercial  bills  and  loans  on 
securities. 

This  assistance,  very  different  from  the  forms  of  aid 
that  had  been  afforded  twenty  years  before,  showed  how 
effective  a  safeguard  for  a  country  is  the  existence  of  a 
great  bank  of  issue  in  moments  of  difficulty  and  dis- 
turbance; and  it  showed  further  that  the  most  difficult 
ordeals  can  be  surmounted  and  the  most  severe  disasters 
avoided  by  comparatively  insignificant  means,  when  there 
is  no  lack  of  precise  perception  of  the  situation  and 
promptness  in  meeting  it. 

The  same  thing,  which  has  been  observed  on  other  occa- 
sions, appeared  contemporaneously  in  even  more  impress- 
ive form  in  the  prodigious  effect  produced  on  the  interna- 
tional market  by  the  prompt  intervention  of  the  Bank  of 
France,  which  succeeded  in  arresting  the  panic  and  dimin- 
ishing the  intensity  of  the  crisis  in  the  United  States,  in 
England,  and,  together  with  the  more  direct  aid  of  the 
Bank  of  Austria- Hungary,  even  in  Germany,  by  putting 
at  the  disposal  of  the  Bank  of  England  not  more  than 
82,000,000  lire. 

39781°— II 12  T75 


National     M  o  n  et  ai^  y     Commission 

It  must  necessarily  seem  inexplicable  that  the  markets 
of  colossally  rich  countries  should  find  themselves  exposed 
to  profound  disorders  and  grave  disasters  because  of  the 
lack  of  less  than  a  hundred  miUion  lire.  The  reason  is  that 
crises  are  considerably  aggravated  by  fear,  which  causes 
the  disappearance  from  the  market  of  a  great  part  of  the 
capital  at  the  very  moment  when  there  is  greatest  need 
of  it.  This  psychological  cause  of  the  aggravation  and 
prolonging  of  crises  is  instantly  removed  when  it  is  known 
that  the  great  institutions  are  disposed  to  intervene,  be- 
cause this  is  sufficient  to  restore  confidence  and  bring 
timid  capital  out  of  its  hiding  places.  But  in  addition  to 
this,  it  must  be  stated  that  in  moments  of  crisis  it  is  always 
a  relatively  limited  amount  that  is  needed  to  meet  the 
differences  in  operations  which  in  the  great  body  are 
arranged  by  mutual  compensations. 

The  examples  afforded  by  the  history^  of  crises  and 
repeated  in  1907,  show  once  more  not  only  the  great  use- 
fulness of  the  existence  of  powerful  banking  institutions 
but  also  the  absolute  necessity  that  their  supreme  direction 
should  be  intrusted  to  men  of  great  ability  who  under- 
stand the  vast  problems  of  credit  and  monetary  econ- 
omy in  which  are  summed  up,  as  in  a  synthesis,  all 
the  problems  that  touch  the  economic  life  of  a  country. 
For  it  is  not  enough  that  the  person  in  supreme  con- 
trol of  a  great  institution  of  issue  should  have  an 
ordinary  business  sense  such  as  must  be  possessed  by 
a  manufacturer,  a  merchant,  or  the  director  of  a  credit 
institution,  if  his  affairs  are  to  be  well  managed.  It  is 
undoubtedly  imperative  that  a  bank  of  issue  shall  accept 
for  discount  only  bills  of  exchange  that  represent  valid 


T76 


The      Banks      of     Issue      in      Italy 

transactions,  promptly  payable  on  maturity.  But  the 
efficient  cooperation  of  all  the  directors  provides  for 
that,  especially  as  they  are  assisted  by  a  large  staff  of  dis- 
count advisers.  Together  with  the  duty  of  watching  closely 
the  quality  of  the  operations  concluded  by  the  establish- 
ments, a  higher  function  is  incumbent  upon  the  general 
director  of  a  great  bank  of  issue ;  he  should  have  a  mind 
capable  of  understanding  the  grave  problems  of  monetary 
economy  that  miay  suddenly  force  themselves  on  his 
attention  and  that  he  must  be  able  to  solve  without  hesi- 
tation or  uncertainty,  with  practiced  speed,  in  order  to 
ward  off  a  convulsion  from  tlie  country  or,  by  prompt 
intervention,  to  lessen  its  disastrous  results.  Therefore, 
a  great  institution  of  issue,  while  it  is  able  in  tranquil  and 
normal  times,  by  a  wise  distribution  of  credit  and  a  correct 
regulation  of  the  currency  to  give  vital  aid  to  every 
sound  form  of  activity*  and  to  be  a  valuable  element  of 
economic  well-being,  can  then  perform  the  important 
functions  of  healing  and  effacing  the  consequences  of  any 
misfortune  that  falls  upon  the  country.  Nor  in  order  to 
perform  properly  this  very  lofty  function  is  it  ahvays 
enough  to  study  assiduously  the  economic  and  monetary 
conditions  of  one's  own  country;  since  a  disturbance  may 
also  be  determined  by  the  reflex  of  a  crisis  that  breaks 
out  in  other  countries  for  political,  monetary,  or  specu- 
lative reasons. 

Meanwhile,  though  the  after  effects  of  the  crisis  are  not 
entirely  done  away  with,  even  yet,  especially  in  the  harm 
done  to  certain  industries,  the  situation  was  no  longer 
acute,  and  Signor  Carcano,  minister  of  the  treasury,  was 
able  to  turn  his  attention  to  several  timely  modifications 


177 


National    Monetary     Commission 

in  the  banking  law.  Although  firmly  convinced  that  the 
base  and  limits  of  the  paper  currency  ought  not  to  be 
substantially  modified  he  recognized  that  the  recent 
experience  had  shown  that  it  lacked  the  necessary  elas- 
ticity to  enable  the  banks  of  issue  to  adapt  their  work- 
ings to  the  changing  needs  of  the  market,  especially  in 
case  of  monetary  stringency.  The  resolution  presented 
by  Minister  Carcano  w^as  ratified  by  Parliament  and 
became  a  law  December  29,  1907. 

He  proposed  a  slight  increase  of  the  circulation,  as  follows : 
For  the  Bank  of  Italy  from  630,000,000  to  660,000,000  lire; 
for  the  Bank  of  Naples  from  190,000,000  to  200,000,000 
lire;  for  the  Bank  of  Sicily  from  44,000,000  to  48,000,000 
Hre. 

The  irreducible  metallic  reserve  to  be  left  as  guaranty 
for  holders  of  notes  was,  however,  to  be  increased :  For  the 
Bank  of  Italy  from  300,000,000  to  400,000,000  lire;  for  the 
Bank  of  Naples  from  90,500,000  to  1 20,000,000  lire ;  for  the 
Bank  of  Sicily  from  21 ,000,000  to  28,000,000  lire. 

The  Bank  of  Sicily  continued  to  enjoy  the  privilege 
already  granted  by  the  laws  of  1906  and  1907  of  an 
increase  of  10,000,000  lire  in  bank  notes,  to  be  used 
exclusively  for  loan  and  discount  operations  in  favor  of 
the  sulphur  industry. 

Minister  Carcano  proposed  further,  along  with  other 
stipulations  of  minor  importance,  that  the  limits  of  the 
issue  of  bank  notes  beyond  the  normal  circulation  and 
the  relative  taxes  on  circulation  should  be  modified  in  the 
following  manner:  For  the  Bank  of  Italy  from  45,000,000 
to  50,000,000  lire;  for  the  Bank  of  Naples  from  14,000,000 
to  15,000,000  hre;  for  the  Bank  of  Sicily  from  3,500,000  to 


178 


The      Banks      of     Issue      in      Italy 

4,000,000  lire,  with  the  payment  of  a  tax  equal  to  one- 
third  of  the  discount  rate. 

In  addition  to  the  above  sums,  and  up  to  double  their 
amount,  it  should  be  modified  by  a  tax  equal  to  two-thirds 
of  the  discount  rate. 

For  subsequent  issues,  and  up  to  the  amount  of: 

Lire. 

For  the  Bank  of  Italy 150,  000,  000 

For  the  Bank  of  Naples 45,  000,  000 

For  the  Bank  of  Sicily 12,  000,  000 

by  a  tax  equal  to  the  discount  rate. 

Further  increases  of  circulation  or  deficiencies  of  metal- 
lic reserve  were  to  pay  a  tax  of  7.50  per  cent. 

Discount  operations  at  a  rate  lower  than  normal  in 
favor  of  people's  banks  and  other  intermediary  institu- 
tions were  increased :  For  the  Bank  of  Italy  from  70,000,000 
to  100,000,000  Hre;  for  the  Bank  of  Naples  from  21,000,000 
to  30,000,000  hre;  for  the  Bank  of  Sicily  from  6,000,000  to 
9,000,000  lire. 

By  this  law  was  also  approved  an  agreement  entered 
into  between  the  Government  and  the  Bank  of  Italy  to 
decide  jointly  certain  questions  that  had  arisen  regarding 
the  payment  of  the  tax  on  circulation,  and  it  was  estabHshed 
that  the  bank  was  to  pay  under  this  head  fixed  sums; 
on  the  other  hand,  it  should  be  authorized  to  comprise 
among  the  profits  to  be  distributed  to  shareholders,  for 
the  years  1907  and  1908,  a  part  of  the  income  of  the  fund 
set  aside  to  meet  the  losses  resulting  from  the  liquidation 
of  old  operations  difficult  to  realize  on. 


179 


Chapter  XIV. 

THE    RESTORATION    OF   THE    BANKS    OF    ISSUE. 

With  the  year  190S,  according  to  the  provisions  of  the 
law,  was  completed  the  laborious  work  of  restoration  of 
the  Italian  banks  of  issue,  and  it  was  completed  under 
more  satisfactory  conditions  than  there  had  been  reason  to 
foresee.  The  Bank  of  Italy  in  the  period  of  eight  years 
succeeded  in  liquidating  operations  for  245,000,000  lire,  of 
which  more  than  108,000,000  lire  were  represented  by  real 
estate  which  had  come  into  the  hands  of  the  bank  for 
various  credit  accounts.  We  should  state  that  the  Bank 
of  Italy  not  only  did  not  profit  by  the  statutory  reserve 
to  wipe  out  unreaUzable  operations,  as  the  law  would  have 
permitted,  but  increased  extraordinarily  this  reserv^e, 
carrying  it  by  December  31,  1909,  to  the  maximum  total 
of  48,000,000  lire.  The  sales  of  real  estate  gave  returns  of 
more  than  11 6,000,000  lire,  of  which  82,500,000  lire  helped 
the  liquidation  of  old  operations,  while  the  remainder  was 
taken  up  by  mortgages  that  encumbered  the  property 
sold.  To  complete  the  carrying  out  of  the  scheme  for 
selling  real  estate  in  lots,  about  14,000,000  lire  in  rural 
property,  of  which  10,865,000  lire  were  included  in  the 
account  of  operations  not  in  liquid  form,  had  been  sold 
in  1907  to  the  Istituto  di  Fondi  Rustici. 

The  general  director  of  the  Bank  of  Italy,  at  the  general 
meeting  of  shareholders  held  March  29,  1909,  in  summing 
up  the   work   accomplished   by  the  bank   during   fifteen 


180 


The      Banks      of     Issue      in      Italy 

years,  certified  in  conclusion  a  surplus  fund  of  32,000,000, 
in  addition  to  the  surplus  which  already  resulted  in  the 
credit  foncier  in  liquidation.  This  fund  would  serve  to 
make  up  the  deficit  of  the  liquidation  of  the  Banca 
Romana,  for  which  the  Bank  of  Italy  must  continue 
setting  aside  annually  2,000,000  lire  until  the  end  of  19 13. 

Considering  that  to  make  up  for  the  losses  of  the  liqui- 
dation of  operations  not  in  liquid  form  or  not  allowed 
by  law,  the  shareholders  contributed  out  of  the  annual 
profits  a  sum  which  together  with  the  accumulated  interest 
amounted  to  1 13,000,000  lire,  and  also  60,000,000  lire  capi- 
tal, of  which  30,000,000  lire  was  paid  up  without  increase 
of  capitalization  and  30,000,000  lire  deducted  from  val- 
uation of  capitalization — that  is,  173,000,000  lire — it  is 
seen  that  the  total  loss  was,  in  round  numbers,  140,000,000 
lire. 

The  surplus  of  32,000,000  lire,  remaining  as  a  final 
result  of  the  liquidation  of  old  operations,  gave  rise  to 
the  question  as  to  the  use  to  be  made  of  it,  taking  into 
consideration  the  stipulations  contained  in  the  agreement 
made  with  the  Government  in  1894,  which,  foreseeing 
precisely  this  contingency  of  a  surplus,  authorized  the 
bank  to  pay  back  gradually  to  stockholders  the  30,000,000 
lire  capital  paid  by  assessment  that  year. 

The  Bank  of  Italy  considering  that  the  cash  fund  for 
pensioning  employees  needed  replenishing,  since  it  had  been 
almost  used  up  in  the  pension  service,  inasmuch  as  the 
conditions  of  the  cash  balance  of  the  bank  did  not  permit 
making  annual  assignments  of  the  sums  needed  for  this 
service,  and  considering,  moreover,  the  opportunity  of  con- 
tributing  a   special   reserve   to    meet    any    contingency, 


181 


National     Monetary     Commission 


decided  to  arrange  with  the  Government  an  agreement  in 
which  it  engaged,  in  substance,  not  to  restore  to  the  share- 
holders the  30,000,000  hre  capital  paid  by  assessment 
and  to  employ  for  the  above  ends  the  surplus  of  32,000,- 
000  lire  and  any  other  surpluses  that  might  result  from 
disposing  of  extraordinary  assets. 

It  is  worth  while  reproducing  here  from  the  report  of  the 
general  director  of  the  Bank  of  Italy  the  following  table, 
which  shows  the  situation  of  the  bank  at  the  end  of  the 
years  1894.  1900,  and  1908: 

(Expressed  in  million  lire.] 


Gold 

Silver 

Domestic  discounts 

Loans 

Securities 

Foreign  discounts.  . 
Foreign  credits  .  .  . 


December  3 : 


[894. 


LIABILITIES- 

Circulation 

Demand  liabilities  and  accounts  current 


826.4 
210.3 


292 

7 

300. 

67 

8 

46. 

184 

2 

258 

27 

7 

35 

71 

8 

175 

23 

I 

72 

10 

5 

20 

[908. 


Ratio  between  the  reserve    (deducting  that  for  demand  | 

liabilities)  and  circulation per  cent .  .  i     43  39 


820.  4 
190.  5 


48.27 


932 

no 

388 

77 

164 

70 

26 


389.1 
195-7 


77-46 


However,  by  December  31,  1908,  the  Bank  of  Italy  had 
liquidated  more  than  half  a  billion  in  operations  of  difficult 
realization  and  of  a  nature  different  from  operations  which 
banks  of  issue,  in  every  well-regulated  banking  system, 
should  undertake ;  the  bank  succeeded  in  doing  this  after 


1S2 


The      Banks      of     Issue      in      Italy 

providing  to  meet  and  make  up  a  loss  of  140,000,000  lire 
resulting  from,  the  liquidation  of  these  operations,  after 
bringing  up  the  statutory  reserve  to  the  sum  of  48,000,000 
lire  with  an  increase,  after  1894,  of  5,500,000  lire,  holding 
besides  among  special  reserves  more  than  5,000,000  lire 
to  provide  for  a  possible  decline  in  the  price  of  State 
securities  owned  by  it,  and  for  other  purposes,  with  more 
than  16,000,000  lire  of  extraordinary  reserve,  already 
realized  to  the  am^ount  of  10,000,000  lire,  the  remainder 
still  to  be  reaUzed.  So,  in  all,  the  bank  has  a  reserve  of 
about  70,000,000  lire. 

This  much  is  given  from  the  point  of  view  of  the  capital 
and  surplus.  From  the  economic  point  of  view,  the 
bank  appears  on  December  31,  1908,  with  an  increase  of 
682,000,000  lire  in  the  metallic  reserve — from  360,000,000 
lire  to  1,042,000,000  lire — of  which  640,000,000  lire  were 
in  gold;  with  an  increase,  besides,  from  33,000,000  lire  to 
97,000,000  lire  in  the  discounts  and  foreign  credits  pay- 
able in  metallic  money;  with  an  increase  of  563,000,000 
lire  in  the  circulation,  which  had  advanced  from  826,- 
000,000  to  1,389,000,000  lire  and  with  an  increase  from 
43-39  per  cent  to  77.46  per  cent  in  the  ratio  between  the 
metallic  reserve  and  the  notes  in  circulation. 


183 


National     Monetary     Commission 

The  three  Italian  banks  of  issue  show  in  the  aggregate, 
from  December  31,  1894,  to  December  31,  1908,  the  dif- 
ferences indicated  in  the  following  table : 

[Expressed  in  million  lire.] 


Gold 


Silver 

Foreign  discounts.  . 
Domestic  discounts 
Loans 


Securities 

Foreign  credits 


LIABILITIES. 

Circulation 

Demand  liabilities  and  accounts  current 


Ratio  between  the  reserve    (deducting   that   for  demand 
liabilities)  and  the  circulation per  cent . 


December  3 : 


1908. 


Differ- 
ences. 


433  i 
80  \ 
23    ■ 

310 
67 

116    \ 

"\ 

126    ' 


179 
132 
124 
550 
117 
259 
32 

862 
325 


+  746 
+  52 

+  101 
+  240 
+  so 

+  143 

+  20 

+736 
+  18 


+  32 


As  may  be  seen,  the  metallic  reserve,  including  the  part 
represented  by  foreign  credits  and  foreign  treasury  bonds, 
has  increased  from  479,000,000  lire  to  1,391,000,000  lire, 
and,  without  taking  into  account  the  part  that  is  to  guar- 
antee sight  liabilities  at  the  ratio  of  40  per  cent,  has  gone 
from  42  to  74  per  cent  of  the  notes  in  circulation,  which 
have  increased   from    1,126,000,000  lire  to   1,862,000,000 


lire. 


The  discount  operations  of  the  banks,  which  amounted 
in  1894  ^o  310,000,000  lire  (in  which  were  still  included, 
for  large  sums,  operations  not  easily  realizable,  which  were 
later  accounted  separately),  are  increased  to  550,000,000 
lire,  and,  as  has   been  shown  by   the    accurate    audits 


184 


The      Banks      of     Issue      in      Italy 

carried  out,  represent  commercial  paper  surely  payable 
on  maturity;  whereas,  in  the  meantime,  there  has  disap- 
peared from  the  bank  statements  with  the  liquidation  of 
the  old  operations  every  trace  of.  the  heavy  inheritance 
from  a  melancholy  past,  a  result  that  is  really  gratifying. 

The  circulation  of  the  Italian  banks  of  issue  now  answers 
in  its  entirety  to  the  most  severe  standards  of  banking 
technique,  since  in  addition  to  commercial  paper  and  State 
securities  and  securities  guaranteed  by  the  State,  it  is 
protected  by  a  very  large  metallic  reserve  and  represents, 
for  a  noteworthy  part,  true  and  proper  certificates  of 
coin. 

For  this  reason,  and  also  as  a  result  of  the  withdrawal 
from  abroad  of  an  enormous  body  of  Italian  securities,  the 
disturbing  element  of  the  money  market  has  been  removed 
and  exchange  remains  nearly  at  par  and  is  subjected  only 
at  intervals  to  the  fluctuations,  in  the  vicissitudes  of  inter- 
national trade,  to  which  is  subject  even  the  exchange  of 
countries  possessing  the  firmest  monetary  basis. 

And,  indeed,  considering  that  after  an  adverse  trade 
balance  of  1,184,000,000  lire  in  1908,  there  was  one  of 
1,245,000,000  lire  in  1909,  in  which  is  included  a  greater 
importation  of  grain  to  the  amount  of  about  116,000,- 
000  lire,  in  comparison  with  1908;  considering  that  the 
remittances  of  ItaHan  emigrants  in  the  United  States 
were  considerably  less,  and  that  likewise,  because  of 
the  crisis  of  1907  and  the  earthquake  of  last  year,  the 
number  of  tourists  coming  to  Italy  was  greatly  dimin- 
ished; considering  that  credits  made  to  Italy  by  discount 
of  bills  of  exchange  have  not  been  renewed  by  several 


135 


National     Mo  n  et  ar y     C om  m  is  s  i o  n 

foreign  markets  since  the  advance  in  the  price  of  money 
at  London  and  BerUn  and  elsewhere;  and  finally,  consid- 
ering that  the  State  has  been  obliged  to  make  payments 
of  large  sums  abroad  for  railroad  materials,  one  cannot 
fail  to  recognize  that  Italian  exchange,  which  has  not  risen 
above  100.60,  has  stood  the  test  of  fire. 

In  this  connection  it  is  really  interesting  to  note  that 
while  in  1882,  notwithstanding  the  recent  abolition  of 
forced  currency,  effected  through  the  importation  of 
644,000,000  lire  in  gold,  Italian  exchange  advanced  sud- 
denly from  99.32  to  104.22  because  of  the  reflex  of  the 
speculative  crisis  that  seized  upon  the  French  market  in 
that  year,  in  1907,  on  the  other  hand,  exchange  fluctu- 
ated only  between  the  two  extreme  points  of  99.65  and 
100.24,  in  spite  of  the  fact  that  the  crisis  of  the  home  mar- 
ket was  aggravated  by  that  of  the  foreign  market. 

It  would  be  impossible  to  demonstrate  in  a  more  elo- 
quent manner  the  difference  between  the  situation  of 
Italy  at  the  two  dates  mentioned  and  the  difference  that 
exists  with  regard  to  exchange,  between  the  conditions  of 
debtor  countries,  with  disordered  finances  and  currency, 
and  those  of  countries  that  are  in  the  respects  just  men- 
tioned in  a  norm^al  condition.  There  is  no  doubt  that  if 
the  domestic  and  foreign  crisis  of  1907  had  found  Italy  in 
the  same  condition  as  in  1882  and  1893,  exchange  would 
have  had  a  sudden  and  considerable  advance. 


186 


Chapter  XV. 

THE  PROGRESS  OF  ITALY  FROM  1 894  TO  1908  IN  COM- 
PARISON WITH  ENGLAND,  FRANCE,  GERMANY,  AUSTRIA- 
HUNGARY,    SPAIN,    AND   BELGIUM. 

And  yet,  the  mere  statement  of  the  progress  made  by 
Italy  in  the  last  fifteen  years  can  not  give  in  the  figures  in 
which  it  is  expressed  sufficient  elements  to  permit  a  just 
estimate  of  its  importance,  since  the  degree  of  progress  or 
retrogression  of  a  country  can  not  be  considered  in  and 
by  itself,  but  must,  in  a  proper  and  right  judgment, 
be  compared  with  the  progress  or  retrogression  of  other 
countries  in  general,  and  in  particular  of  those  with  which 
it  finds  itself  in  more  immediate  contact  and  in  closer 
and  more  frequent  business  relations.  A  country  that 
has  advanced  in  a  given  period,  in  a  given  proportion,  can 
not  consider  itself  stronger,  if,  in  the  same  period,  other 
countries  have  advanced  in  much  greater  proportion, 
because  it  will  find  itself,  in  relation  to  these  countries, 
in  a  position  of  relative  inferiority. 

It  is  therefore  timely  to  make  a  comparison  between 
the  principal  financial,  economic,  and  monetary  indices 
of  Italy  and  those  of  other  countries  from  1894  to  1908, 
in  order  to  gain  a  clearer  and  more  precise  idea  of  the 
progress  made  by  Italy. 


187 


National     Monetary     Commission 


The  circulation  of  the  principal  European  banks  of  issue 
has  had,  from  1894  to  1908,  the  following  variations: 


tExpressed  in  million  lire. 


Bank  of  England 

Bank  of  France 

Imperial  Bank  of  Germany 
Bank  of  Austria-Hungary . 

Bank  of  Spain 

Bank  of  Belgium 

Italian  banks 


t894. 


646 
3.481 
I.  295 
1,066 
909 
446 
1,126 


t9o8. 


747 
5  ■  225 
2.  370 
2,  218 
I,  645 

800 
1.862 


!     D 


iffer- 
ence. 


744 
07s 
152 
732 
253 
736 


Per 
cent. 


IS 
50 
83 
107 
80 
79 
6S 


The  Italian  banks  of  issue  occupy  the  fourth  place,  in  the 
increase,  in  absolute  figures  of  the  circulation,  coming 
after  the  Bank  of  England,  the  Bank  of  Belgium,  and  the 
Bank  of  Spain;  and  they  occupy  the  third  place  after  the 
Bank  of  England  and  the  Bank  of  France  in  the  per  cent  of 
increase  of  the  circulation  itself. 

The  metallic  reserve  has  had  the  following  variations : 

[Expressed  in  million  lire.] 


Bank  of  England 

Bank  of  France 

Imperial  Bank  of  Germany 
Bank  of  Austria-Hungary  . 

Bank  of  Spain 

Bank  of  Belgium 

Italian  banks 


1894. 

1908. 

Differ-     : 
ence.       1 

1 

1        ^'" 

772 

1 
45 

3. 311 

4,371 

-rl  ,  o6o 

I,  256 

I.  176 

-        8o| 

«644 

h  I. 612 

+      968 

•^533 

d  1,282 

+       749 

e  229 

/343 

+       114 

536 

0  1,477 

+      941 

o  Of  which  26,000,000  are  in  foreign  paper. 

^  Of  which  63,000,000  are  in  foreign  paper. 

c  Of  which  275,000,000  are  in  silver  and  57,000,000  in  foreign  paper. 

d  Of  which  810,000,000  are  in  foreign  paper. 

«  Of  which  99,000.000  are  in  foreign  paper. 

/  Of  which  184,000,000  are  in  foreign  paper. 

0  Of  which  141,000,000  are  in  foreign  paper. 


Per 
cent. 


-  5 
+    33, 

-  6 
+  150 
+  140 
+  50 
+  175 


188 


The      Banks      of     Issue 


t  n 


Italy 


The  figures  relating  to  the  metalHc  reserve  of  the  Bank 
of  Spain  can  not  rightly  be  compared  with  those  of  the 
other  banks  because  of  the  unduly  large  amount  of  silver 
included  in  them,  which  far  exceeds  the  ratio  of  25  per 
cent  allowed  but  not  reached  by  the  Italian  banks.  In 
order  to  reduce  the  metallic  reserve  of  the  Bank  of  Spain 
to  a  monetary  value  approximately  comparable  to  that 
of  the  other  banks,  it  seems  just,  therefore,  to  add  to  the 
amount  of  gold  an  amount  of  silver  representing  25  per 
cent  of  the  total,  and  to  consider  the  surplus  silver  at  its 
market  value,  according  to  the  proposal  made  by  the 
former  Spanish  minister  of  finance,  Senor  Besada,  The 
reserve  of  the  Bank  of  vSpain  thus  made  up  would  be: 

[Expressed  in  million  lire.] 


1894. 

iyo8. 

Differ- 
ence. 

Per 
cent. 

Gold.  .                                        

257 

64 

127 

472 
157 
271 

1 
+  215             -^   8j 

+    93 

+  144 

+  145 
+  113 

Silver  at  commercial  valvic                                    .  .  . 

Total 

448 

900 

+  452 

It  appears,  therefore,  that  w^hile  Italy  occupies,  with  a 
slight  difference,  the  third  place  after  France  and  Austria- 
Hungary  in  the  increase,  in  the  absolute  figures,  of  the 
metallic  reserve  of  the  banks  of  issue,  it  occupies,  on  the 
other  hand,  the  first  place,  at  a  considerable  distance  from 
the  other  countries,  in  the  proportional  increase  of  the 
reserve  itself  from  1894  to  1908,  an  increase  equal  to  175 
per  cent. 


189 


National     Monetary     Commission 


This  increase  has  a  greater  importance  if  one  considers 
that  gold  enters  into  it  in  greater  proportions  than  in  the 
other  countries,  as  appears  from  the  following  data: 


[Expressed  in  million  lire] 


CrOLIX 

Bank  of  England 

Bank  of  France 

Imperial  Bank  of  Germany 

Italian  banks 

Bank  of  Austria-Hungary 

Bank  of  Spain 

Bank  of  Belgium 

SILVER 

Bank  of  England 

Bank  f>f  France 

Imperial  Bank  of  Germany  .... 

Italian  banks 

Bank  of  Austria-Hungar>' 

Bank  of  Spain 

Bank  of  Belgium 


[894. 


817 
2,  070 
799 
433 
326 
200 


00 

I,  242 

469 

80 

29 
276 

41 


[908. 


Differ- 
ence. 


768 
488 
919 
179 

241  I 

127   I 


883 
306 
132 
308 
811 
32 


-  49 
+  1,418 

+  120 

+  746 

+  915 

+  272 

+  39 


359 
163 
52 
279 
535 
9 


Percentage  of  silver  to  the  total  reserve. 


1894. 

1908. 

Per  cent. 

Per  cent. 

00 

00 

37 

20 

37 

25 

15 

10 

8 

19 

57 

63 

32 

20 

Differ- 
ence. 


Bank  of  England 

Bank  of  France 

Imperial  Bank  of  Germany 

Italian  banks 

Bank  of  Austria-Hungary . 

Bank  of  Spain 

Bank  of  Belgium 


Per  cent. 
00 


12 


-  5 
+  11 
+   6 

—  12 


As  may  be  seen,  silver  forms  only  10  per  cent  of  the 
reserve  of  the  Italian  banks. 


190 


Th 


Banks      of     Issue      in      Italy 


The  ratio  between  the  reserve  and  the  notes  in  circula- 
tion has  had  in  the  fifteen  years  the  following  variations : 


1908. 

Difference 
from  1894. 

Bank  of  England 

Per  cent. 
103 
83 
49 
74 
.72 
55 
42 

Per  cent. 

-23 

Bank  of  France 

Imperial  Bank  of  Germany 

-48 
+32 
+  12 
+  6 
-   9 

Italian  banks 

Bank  of  Austria-Hungary 

Bank  of  Spain 

Bank  of  Belgium 

In  this  regard  also  the  Italian  banks  occupy  the  first 
place  with  an  increase  of  32  per  cent  of  the  ratio  between 
the  metallic  reserve  and  the  notes. 

In  consequence  of  the  movement  which  took  place  in  the 
paper  currency  and  the  metallic  reserve  of  the  same  banks 
in  the  period  from  1894  to  1908  the  total  of  bank  notes 
not  covered  by  reserve  has  varied  as  follows : 

[Expressed  in  million  lire.] 


Bank  of  France 

Imperial  Bank  of  Germany 

Italian  banks 

Bank  of  Austria-Hungary . 

Bank  of  Spain 

Bank  of  Belgium 


1894- 


170 
39 
590 
422 
461 


1908. 


8S4 
194 

38s 
606 
741 
457 


Differ- 
ence. 


+  684 
+  1.  15s 
-  20s 
+  184 
+  280 
+   239 


Per 
cent. 


+  402 
+  2963 
-  34 
+   43 

+  60 
+  109 


The  uncovered  circulation  alone  of  the  Italian  banks  has 
diminished  by  205,000,000  lire,  at  the  ratio  of  34  per  cent. 

It  should  be  explained  here  that  in  the  comparisons 
between  the  circulation  and  the  metallic  reserve  of  foreign 


39781' 


■13 


191 


National     Monetary     Commission 

banks  and  Italian  banks  no  account  has  been  taken  with 
regard  to  the  latter  of  the  part  of  the  reserve  which  by 
legal  provision  was  to  be  held  as  guaranty  for  the  sight 
liabilities  at  the  ratio  of  40  per  cent,  and  the  whole  reserve 
has  been  placed  over  against  the  total  of  the  notes  in 
circulation.  It  is  a  question  here  of  an  article  of  the 
Italian  law  which  has  no  parallel  in  the  banking  laws 
of  other  countries,  and  which  there  is  no  occasion  to  con- 
sider in  the  comparative  study  of  the  metallic  reserves 
and  the  circulation,  because  otherwise  the  terms  of  the 
comparison  would  need  to  be  altered  to  the  loss  of 
Italy,  and  this  would  destroy  the  homogeneity  necessary 
for  an  exact  comparison.  It  is  a  question,  in  fact,  of  a 
legislative  provision  which  can  not  alter  the  state  of  things 
which  should  be  considered  with  a  unified  standard.  Nor 
is  it  a  valid  objection  that  the  sight  HabiUties  of  the  Italian 
institutions  for  which  the  law  requires  a  reserve  of  40  per 
cent  has  no  parallel  in  the  foreign  bank  of  issue,  since  they 
are  composed  almost  wholly  of  negotiable  paper  of  a  kind 
that  does  not  exist  outside  of  Italy.  To  raise  such  an 
objection  would  be  to  conceal  a  question  of  substance 
behind  a  question  of  form. 

Now,  the  question  of  substance  is  that  the  foreign  banks 
have,  like  the  ItaHan  ones,  under  the  form  of  trans- 
fers or  accounts  current,  debts  that  must  be  considered 
as  a  virtual  supplementary  circulation,  which,  on  the 
demand  of  creditors,  may  increase  the  real  circulation. 
If,  therefore,  a  reserve  is  considered  necessary  against  the 
sight  liabilities  of  the  Italian  banks,  a  reserve  should 
also  be  considered  necessary  against  the  other  debts  of 


192 


The     Banks     of     Issue 


tn 


Italy 


the  same  banks  and  of  foreign  ones;  or  at  least,  since 
the  Italian  law  is  more  severe  on  this  point,  it  would  be 
necessary  in  a  comparative  study,  to  leave  out  of  account 
the  terms  of  the  law,  or  else  extend,  through  analogy  and 
homogeneity,  the  informing  concept  of  it  to  foreign  banks 
also. 

Given  this  standard,  this  is  what  the  relation  would  be 
between  the  metallic  reserves  and  the  total  of  the  active 
circulation,  demand  liabilities,  and  deposits  in  accounts 
current : 

[Expressed  in  million  lire.] 


Bank  of  France 

Imperial  Bank  of  Germany 
Bank  of  Austria-Hungary  . 

Bank  of  England 

Bank  of  Belgium 

Bank  of  Spain 

Italian  banks 


[894. 


Circula- 
tion, de- 
mand lia- 
bilities, 
deposits. 


Metallic  reserve. 


4.039.  7 
1.894.6 
1.095.4 
I. 471-3 
490.  4 
I. I9I-5 
1.468.8 


Total. 


3. 311 
I.  256 
644 
817 
228 
0448 
535 


Per 
cent. 


1908. 


Circula- 
tion, de- 
mand lia- 
bilities, 
deposits. 


5. 

3.158. 
2.369. 
2.09S- 
877. 
2,094. 
2, 187. 


Metallic  reserve. 


Total. 


° 

4.371 

4 

I.  176 

2 

I,  612 

° 

772 

' 

343 

7 

0900 

0 

1.477 

Per 
cent. 


oThe  amounts  of  the  metalic  reserve  for  the  Bank  of  Spain  have  been  calculated 
according  to  Senor  Besada's  scheme  referred  to  above. 

The  Italian  banks  which  figure  in  the  last  rank  in  1894, 
with  a  percentage  of  36,  advance  in  1908  to  the  third 
rank  with  a  percentage  of  67,  against  74  for  France  and 
68  for  Austria-Hungary. 

Now  that  we  are  on  the  point  of  concluding  fortunately 
with  the  picture  of  an  auspicious  ending,  the  exposition 
of  the  perilous  vicissitudes  of  the  banks  of  issue  in  Italy, 
and  of  completing  this  sketch  with  a  brief  outline  of  the 


193 


National     Monetary     Commission 

principal  points  of  the  financial  and  economical  progress 
of  Italy  during  the  fifteen  years,  in  comparison  with  those  of 
other  countries,  it  should  be  stated  that  this  outline  is  all 
the  more  necessary  in  that  the  new  elements  to  be  passed 
in  revicAv  can  not  be  considered  foreign  to  those  we  have 
just  examined;  so  close  and  intimate  are  the  ties  and  so 
frequent  the  relations  between  all  of  these  elements  that 
it  is  very  often  hard  to  distinguish  which  of  them  are  to  be 
considered  as  causes  and  which  as  effects  in  the  economic 
and  financial  vicissitudes  of  the  country. 

And  indeed,  as  for  the  increase  of  the  metallic  reserves 
of  the  banks,  through  which  their  note  circulation  has  come 
to  be  increased  in  quantity  and  improved  in  quality,  is 
it  not  due  in  part  to  the  work  of  reconstruction  of  the 
banks,  giving  value  to  their  notes,  and  in  part  to  the 
greater  and  more  profitable  industrial  and  commercial 
activity  of  the  country,  enabling  it  to  free  itself  in  a 
monetary  way  from  foreign  markets  ?  And  has  not  this 
same  greater  industrial  and  commercial  expansion  of  the 
country  been  promoted  or  at  least  effectively  helped  by  the 
banks  of  issue  ? 

The  industrial  and  commercial  advancement  of  Italy 
is  clearly  shown  by  the  table  on  page  195,  in  which  is  indi- 
cated the  total  of  the  international  commercial  imports  and 
exports  in  each  of  the  years  from  1894  to  1908,  in  compari- 
son with  that  of  other  countries. 


194 


The      Banks      of     Issue      in      Italy 


[Expressed  in  million  lire.] 


Year. 


1894 

189s 

1896 

1897 

1898 

1899 

1900 

1901 

1902 22, 082 

1903 !    20,  975 

1904 21, 428 

1905  22, 509 

1906 22, 585 

1907 26, 961 

1908 I    24.395 


Eng- 
land. 

Ger- 
many. 

France. 

15.693 

9,  200 

6.928 

16, 171 

9.398 

7.086 

18.561 

9.846 

7.  241 

18,737 

9.  960 

7.67s 

18.787 

11.375 

7.879 

Aus- 
tria. 


Bel- 
gium. 


20.397 
21,956 
21, 906 


Difference  between  1908 
and  1894 — per  cent  .  . 


+  55 


1.576 
2.46s 
2.851 
2,862 
3.  763 
4.457 
5.933 
7.900 
9.325 
8.695 


+  103 


116 
486 
981 
652 
818 
012 
646 
894 
219 
363 


3.  139 
3.087 
3.  179 
3,  221 
3.417 
3.  610 
3,820 

3.  770 
3.818 

4.  207 
4.320 

4.  609 
4.791 

5.  208 
5.  100 


2,50s 
3.06s 
3.  244 

3.  262 
3.580 
3.880 
3.917 
4.033 

4.  133 

4.  414 
4.676 

5.  102 
5.  566 
6.243 
5.958 


Italy, 


Spain. 


2,  121 
2.  225 
2,  232 
2.283 

2.  617 
2.938 
3.038 
3.903 
3.248 
3.379 
3,473 

3.  721 
4.420 
4,829 
4.889 


+  64 


+  137 


I,  292 
1.347 
I,  606 
1,718 
1.456 
I. 661 
1,586 
1.539 
1.563 
I,  646 

1,  718 

2,  058 
I.  912 
1.889 
1.878 


+  45 


Italy,  as  it  is  seen,  comes  directly  after  Belgium,  with 
an  increase  of  130  per  cent  in  the  general  movement  of 
its  commerce  in  comparison  with  1894. 

The  budget  also  presents  satisfactory  data  during  the 
fifteen  years  in  spite  of  the  ups  and  downs  passed  through 
by  Italian  finance. 

The  table  on  page  196  sums  up  as  a  whole  the  aggregate 
results  of  the  budgets  and  the  movements  of  the  public 
debts  of  the  principal  countries  during  the  fifteen  years. 


195 


National     Monetary     Commission 


Period  from  i8g4  to  igo8. 
[Expressed  in  million  lire.] 


Expenditures. 

Public  debt. 

Surplus  (  — )  or 
Total           Deficit  (+). 
from     1 

Amount  to — 

Difference. 

1894  to  j                  i 
-OS.     ;    -rota,.    1     ,^-. 

!              1 

1894. 

1908. 

Total. 

Per 
cent. 

Italv                   .    ... 

28,000   —     630     —2.50 

12.  4<;^ 

I 
12,648    +      195 
17. 872    +1,122 
05.318    +2,875 
32, 990    +  I, 990 

16,403    +  2,930 

+       1.56 

England 

German  Empire  .  .  . 

55,500   +3.500     +6.00     16.750 

37,000     —        114        -     .30    ;   12.443 

54.000    —      390      —    . 70  t  31,000 

^^•r     '       '°°     I--48       X3.473 
19, 800     —       334     j 

+      6.69 
+  117.68 
+      6.  42 

Hungary             .  . 

+    21.74 

a  This  is  the  debt  of  the  German  Empire.  It  one  adds  to  this  the  aggregate  of  the  debts  of 
the  various  German  states,  it  appears  that  the  total  German  debt  has  increased  from  12.183 
million  lire,  in  1894.  to  21,218  million  lire  in  1908.  or  an  increase  of  74.16  per  cent. 

It  is  apparent  from  these  figures  that  Italy  has  had 
a  total  increase  in  the  budget  amounting  to  630,000,000 
lire,  equal  to  2.50  per  cent  of  the  aggregate  expenditure, 
having  also  included  in  the  ordinary  expenditures  more 
than  300,000,000  lire  in  expenditures  on  railroads,  whereas 
the  public  debt  has  increased  by  only  195,000,000  lire, 
equal  to  1.56  per  cent. 

The  absolute  increase  may  therefore  be  considered 
435,000,000  lire;  to  this,  in  order  to  give  the  terms  of  the 
comparison  the  necessary  homogeneity,  should  be  added 
the  300,000,000  lire  expended  on  railroads;  and  thus,  in 
comparison  with  the  other  countries,  Italy  presents  an 
increase  of  735,000,000  lire,  without  any  addition  to  the 
debt. 


196 


The      Banks      of     Issue 


in 


Italy 


Proceeding  with  the  same  method  of  rectification  in 
respect  to  the  other  countries,  bearing  in  mind  that  the 
increase  of  debts  is  generally  due  to  the  need  of  making 
up  for  financial  expenditures,  we  shall  have  the  following 
table: 


Actual  defi- 
cit in  the 
fifteen 
years 
(millions). 

Per  cent  of 

debt  to 

1894. 

1,  122 

2,  761 
1,600 
2,  196 

6.69 

German  Empire 

113. 01 

Prance                                                                     

5.  16 

Austria-Hungary 

16.  29 

All  this  confirms  in  a  sufficiently  eloquent  manner  the 
fact  that  Italy,  even  in  regard  to  State  finances,  has  ob- 
tained during  the  fifteen  years  results  that  seemed  beyond 
all  hope  and  that  place  it  in  the  first  rank  for  the  impor- 
tance of  the  increase  of  returns  and  the  small  increase  in 
the  debt.  One  must  consider,  of  course,  with  a  compara- 
tive and  proportioned  standard  the  progress  made  in  the 
fifteen  years  by  the  various  countries,  keeping  in  mind  the 
different  degree  of  economic  and  financial  power  of  each 
of  them  and  the  possibility  of  richer  countries  being 
able  to  face  financial  deficits  and  bear  the  burden  of  an 
increased  debt  without  its  weighing  too  heavily  upon  their 
economic  conditions.  This,  considering  the  degree  of  the 
pressure  of  taxation  in  relation  to  private  wealth,  and 
considering  the  weight  of  the  burden  of  the  debt,  would 
be  very   difficult,    if    not    entirely   impossible,   in    Italy. 


197 


National     Monetary     Commission 

Therefore  Italy  should  be  given  credit  for  the  great 
merit  of  having  grasped  the  gravity  of  the  situation  and 
its  inherent  dangers  and  of  having  avoided  these  dangers 
by  improving  the  situation,  thanks  to  intelligent,  ener- 
getic, and  enlightened  action. 

As  we  have  said  above,  the  successive  measures  taken 
by  the  Honorables  Sonnino  and  Luzzatti  contributed  to 
put  Italian  finance  on  the  right  road,  and  particularly  the 
determination  to  cease  from  all  issues  of  public  securities, 
including  those  for  building  railroads,  which  are  provided 
for  by  the  ordinary  resources  of  the  budget.  This  determi- 
nation was  called  extreme  and  may  still  seem  so  to-day, 
unless  one  considers  that  Italy  had  abused  debts  beyond 
all  measure  of  prudence  and  proportion,  and  the  burden 
of  these  debts  far  surpassed  that  of  other  countries,  taking 
into  account  the  relative  private  wealth.  Here  is  a  state- 
ment of  the  situation  in  this  regard  in  1897: 


Sum  total  and  cost  of  the  public  debt. 


Total 
(millions). 

Per  cent  of 
private 
wealth. 

Cost 
(millions). 

Per  cent  of 
private 
wealth. 

Italy 

13,000 
31, 090 
16, 019 
15.767 
13.972 
2.328 

24.  07 

13-80 

6.38 

7.17 

16.  25 

6.8s 

703 
I,  020 
625 
637 
653 
113 

1 .  30 

England 

•  25 

Austria- Hungary 

76 

Belgium.  .  .                  

•  33 

It  will  be  helpful  now  to  see  what  has  happened  since 
then  in  the  matter  of  loans  in  Italy  and  the  other  coun- 
tries. The  following  table  gives  the  total  amount  of  obli- 
gations issued  for  the  past  eleven  years,  distinguishing 
those  of  the  Government,  the  provinces,  and  the  com- 


198 


The      Banks      of     Issue      in      Italy 

munes  and  those  of  the  banking,  industrial,  and  railroad 
companies : 


Italy 

France 

England 

Germany 

Austria-Hungary 

Belgium 

Spain 


Total  issues 
(millions). 

State,  pro- 
vincial, and 
communal 
issues. 

Per  cent. 

I.  195 

13 

12.047 

18 

34.309 

35 

31.647 

37 

2,509 

47 

3.873 

44 

3.  550 

58 

■  Banking, 

industrial, 

and  railroad 

issues. 


Per  cent. 


As  may  be  seen,  Italy  during  the  past  eleven  years  is 
the  country  that  has  had  recourse  to  loans  for  relatively 
the  smallest  sum  in  comparison  with  other  countries,  and 
has  had  occasion  to  borrow  only  155,300,000  lire  on 
government,  provincial,  and  communal  obligations,  and 
1,039,600,000  lire  for  issues  of  stocks  and  bonds  for 
banking,  industrial,  commercial,  and  railroad  companies. 
If  one  considers  the  small  amount  of  the  issues  for  the  State 
and  for  companies,  together  with  the  regulation  accom- 
plished of  public  finances  and  the  economic  progress  of  the 
country,  eloquently  proved  by  the  figures  of  the  move- 
ment of  trade,  it  will  be  seen  that  Italy  has  been  able  to 
find  within  itself  the  strength  to  rise  from  the  slough  into 
which  it  had  fallen,  and  has,  by  faithful  and  fruitful  work, 
multiplied  the  productive  capacity  of  its  available  capital. 

From  the  comparison  of  the  progress  of  the  various 
countries  in  the  last  fifteen  years  all  the  relative  value  of 
the  progress  of  Italy  does  not  appear,  a  value  that  can  not 
fail  to  attain  much  greater  importance  if  we  consider  that 
Italy  was  in  1894  in  a  very  serious  economic,  financial,  and 


199 


National    M  o-n  e  t  ar  y     Commission 

monetary  condition,  and  was  obliged  from  that  time 
to  devote  a  great  part  of  its  activity  to  curing  the  ills 
by  which  it  was  afflicted  before  being  able  to  carry  on 
the  work  of  economic  reconstruction;  whereas,  with  the 
exception  of  Spain  and  England,  which  had  to  bear  the 
expense  of  the  wars  in  Cuba  and  the  Transvaal,  the 
other  countries  were  able  to  continue  quietly  devoting 
themselves  to  their  economic  activity. 


200 


Chapter  XVI. 

CONCI.USION. 

The  satisfactory  results  obtained  in  every  field,  of 
which  Italy  is  justly  proud,  would  not,  however,  have 
been  possible  without  the  accompanying  aid  of  all  pro- 
pitious circumstances;  unless,  after  framing  suitable  laws, 
gradually  adapted  to  the  modified  conditions  of  the 
country  and  the  banks,  their  administration  had  been 
scrupulously  and  profitably  carried  out;  unless,  while  the 
banks  were  bent  on  improving  their  own  situation,  the 
State  had  done  energetic,  active,  and  vigorous  work  to 
establish  finance  upon  a  stable  and  durable  footing;  and, 
above  all,  unless  the  industriousness  of  the  inhabitants 
and  their  powers  of  sacrifice  and  economy,  reconstruct- 
ing and  increasing  the  public  riches,  had  efficiently  aided 
the  restoration  of  the  banks,  circulation,  and  finance;  and 
indeed,  if  the  Italian  people,  by  the  vigorous  impulse  given 
to  industry,  had  not  opened  new  avenues  of  trade;  if  they 
had  not  been  aided  by  the  upbuilding  and  compensatory 
elements  represented  by  the  industrious  and  economical 
emigrants  who  pour  into  the  country  plentiful  remittances 
of  money,  and  by  the  exploitation  of  the  glories  of  history, 
art,  and  nature,  that  bring  under  its  wonderful  sky  tourists 
from  all  quarters,  it  would  not  have  been  possible  to  change 
gradually  the  position  of  Italy  from  a  debtor  country  to  a 
country  often  creditor ;  the  wisdom  and  firmness  of  states- 
men and  bank  directors  would  not  alone  have  been  enough 
to  perform  the  wonder. 


National    Monetary     Commission 

For  it  is  clue  precisely,  in  great  part,  to  the  fruitful 
industry  of  the  Italian  people  that  Italy,  ceasing  to  be  a 
debtor  country,  under  monetary  tribute  to  foreign  coun- 
tries, has  become  a  creditor  country  and  has  seen  turned 
in  its  favor  the  economic  and  monetary  balance,  even  to 
the  point  of  receiving  from  abroad  large  sums  of  gold  which 
have  flowed  into  the  banks  of  issue  in  exchange  for  notes. 
It  is  likewise  due  further  to  the  accumulations  of  savings 
of  the  Italian  people  that  a  considerable  part  of  the  State 
securities,  which  had  been  owned  abroad,  has  returned 
to  Italy,  so  as  to  save  the  country  henceforth,  as  we  have 
already  seen,  from  the  violent  and  disturbing  effect  of 
the  sudden  return  of  securities  to  which  debtor  countries 
with  abnormal  finances  and  circulation  are  often  exposed 
whenever  the  creditor  markets  are  affected  by  a  crisis  or 
pressed  by  monetary  difficulties. 

And  indeed,  whereas  in  the  preceding  crises  of  the 
international  market,  Italian  exchange  had  to  suffer  con- 
siderable disturbances,  the  crisis  of  1907  left  it  quiet  in 
the  neighborhood  of  par  in  spite  of  the  fact  that  the  home 
market,  as  we  have  seen,  was  also,  for  reasons  pecuUar 
to  itself,  gravely  affected. 

On  the  other  hand,  it  must  be  recognized  that  the  efforts 
of  the  Italian  people  would  have  given  less  results  if  they 
had  not  been  ably  aided  in  the  work  of  economic  recon- 
struction by  the  right  direction  given  to  the  public  finance 
and  the  regulation  of  the  banks  and  circulation. 

As  in  the  preceding  period  of  difficulty  and  distress,  so 
in  the  fortunate  period  of  reconstruction  it  has  been  pos- 
sible to  see  that  there  is  an  intimate  connection  between 
the  finances  of  a  country  and  its  economic  conditions. 


The      Banks      of     Issue      in      Italy 

For  this  reason,  in  order  to  give  to  each  in  equitable  meas- 
ure the  merited  share  of  praise,  it  should  be  recognized  that 
all  those  who  in  the  government  and  direction  of  the  banks 
of  issue  helped  to  start  finance  and  the  circulation  in  the 
right  path  have  acquired  a  high  title  to  the  gratitude  of 
the  country  whose  economic  reconstruction  they  have 
efficiently  aided.  And  among  the  men  who  succeeded 
each  other  in  the  Government  we  should  mention  with 
special  honor  the  Honorables  Giolitti,  Luzzatti,  and  Son- 
nino,  who  in  the  field  of  finance  and  that  of  circulation 
have  made  an  ineffaceable  impress  upon  the  history  of 
modern  Italy. 

The  edifice  of  finance  and  credit  auspiciously  and 
solidly  reconstructed,  with  such  keenness  of  intellect  and 
so  much  vigorous  effort,  must  henceforth  be  considered 
as  a  sacred  thing,  over  the  safety  of  which  Italy  must 
keep  watch  with  jealous  care.  This  warning  can  hardly 
seem  superfluous  if  we  consider  that  although  there  is 
reason  to  suppose  that  the  severity  of  the  law,  the  abil- 
ity and  unanimity  of  the  men  placed  in  the  manage- 
ment of  the  banks  of  issue,  and  the  sad  but  salutary 
records  of  the  past,  will  save  Italy  new  banking  crises; 
there  is,  on  the  other  hand,  reason  to  fear  that  the  sound 
structure  of  finance  may  be  shaken  unless  efficient  and 
energetic  action  is  brought  to  bear  to  repulse  all  the 
attacks  to  which,  under  every  sort  of  pretext  of  the  pub- 
lic interest,  the  Italian  budget  is  exposed. 

This  warning  is  all  the  more  opportune  if  one  reflects 
further  that  the  passing  of  the  management  of  the  rail- 
roads to  the  State  represents  an  unknown  quantity  that 
is  not  reassuring,  and  demands,  meanwhile,  an  enormous 


203 


National     Monetary     Commission 

sum  that  will  not  be  adequately  remunerated  by  the 
railroad  earnings — a  sum  that  must  be  obtained  by 
issues  of  special  obhgations;  and  also  if  one  bears  in 
mind  that,  as  we  have  already  seen,  the  national  eco- 
nomic conditions  are  still  disturbed,  especially  in  the 
Industrial  field,  by  the  errors  committed  by  speculators 
in  1906  and  by  the  results  of  the  crisis  that  broke  out  in 
1907. 


204 


trade  zi 

trade. 

xports. 

I 

07S 

I 

162 

1 

131 

978 

1 

022 

I 

208 

934 

I 

021 

I 

072 

I 

104 

I 

i6s 

I 

152 

I 

186 

I 

071 

95° 

I 

028 

I 

00s 

892 

951 

896 

877 

958 

964 

,  026 

,038 

.052 

.  092 

.  204 

.431 

.338 

.374 

.472 

.517 

.597 

.731 

.893 

,851 

.858 

Statistical  items  on  finance,  circuiation,  credit,  and  trade  in  Italy  from  iS-ji  to  igo8. 


Banks  of  i 

MovemeO 

„,,™.e. 

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ItoUan 

ren.es 

odeet. 

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.„.s..,es. 

.... 

— 

— 

— 

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asS^vl.    .SSS. 

M 

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~ 

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399 

89 

z 

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116 

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106.  jj 

■0..8, 

98.45 
.05- OJ 

86.60 
89  35 

90  80 
87.30 

Si" 

106   00 

58.  .0 
58.95 

68.  70 

.!36, 

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■'■'                                                           

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»iao 



39781°—!  I .     {To  (ace  page  204. ) 


The  Italian  Banks  of  Issue 


BY 

CARLO  ¥.  FERRARIS 

Professor  in  the  University  of  Padua 


205 


THE  ITALIAN  BANKS  OF  ISSUE. 

[From  Conrad's  Handworterbuch  der  Staatswissenschaften,  3d  edition] 
BY 

CARLO  F.  FERRARIS 

University  of  Padua 

Part  I. — The  hanks  prior  to  i8g^. 

Page. 

I.  The  Banca  Nazionale 207 

II.  The  extinct  banks  of  issue 209 

III.  The  Bank  of  Naples  and  the  Bank  of  Sicily 212 

IV.  Bank  legislation  from  1866  to  1892 216 

Part  II. — The  banks  since  iSgj. 

V.  Causes  of  the  new  legislation 221 

VI.  Character  and  administration  of  the  banks  of  issue 225 

VII.  The  system  of  branch  banks 231 

VIII.  Capital  of  the  banks  of  issue 233 

IX.  The  issue  of  bank  notes . 234 

X.  Discounts,  loans,  deposits. — Drafts,  checks,  etc. — ^The  rate  of 

discount 242 

XI.  The  surplus 248 

XII.  The  banks  in  their  relations  to  the  State 250 

XIII.  Statistics 254 

Part  I.— THE  BANKS  PRIOR  TO  1893. 

I. — The  Banca  Nazionale. 

The  Sardinian  Government  in  the  year  1 844  sanctioned 
the  foundation  in  Genoa  of  a  discount  and  deposit  bank 
having  the  privilege  of  issuing  notes,  and  a  similar  insti- 
tution in  Turin  was  chartered  in  1847.  Each  was  to 
have  a  capital  of  4,000,000  lire.  Royal  decrees  of  1849 
and  1850  authorized  the  consolidation  of  the  two  banks 
into  a  single  institution  called  the  Banca  Nazionale,  with 
its  seat  in  Genoa,  with  a  capital  of  8,000,000  lire,  a 
monopoly  of  the  issue  of  bank  notes,  and  a  chartered  term 

39781°— II 14  207 


National    Monetary     Commission 

of  existence  of  thirty  years.  In  1852  the  capital  was 
increased  to  32,000,000  Hre  and  the  bank  proceeded  to 
estabUsh  branches. 

In  1859  the  institution  extended  its  operations  to  the 
newly  liberated  Lombardy.  A  new  bank  act  was  sanc- 
tioned by  royal  decree  of  October  i,  1859,  and  the  capital 
was  increased  to  40,000,000  lire.  In  1861  two  banks  of 
issue,  the  Banca  di  Parma «  and  the  Banca  di  Bologna 
(or  Banca  delle  Quattro  Legazioni)^  were  incorporated 
with  it.  At  the  same  time  new  branches  and  sub- 
branches  were  opened  in  the  Neapolitan  and  Sicilian 
provinces,  and  the  institution  assumed  the  title  of  Banca 
Nazionale  nel  Regno  (National  Bank  in  the  Kingdom). 
In  1865  its  capital  was  increased  to  100,000,000  lire.  A 
branch  was  at  this  time  established  in  the  new  capi- 
tal of  Italy,  Florence,  and  later  subbranches  were  opened 
in  other  cities  of  Tuscany.  The  same  thing  was  done  in 
1866-7  in  the  newly  liberated  Venetian  provinces,  and  the 
institution  absorbed  another  bank  of  issue,  the  Stabili- 
mento  Mercantile  Veneto,  at  Venice. *=  Finally,  in  1871 
headquarters  were  established  at  the  new  capital,  Rome, 
and  in  1872  the  bank  was  authorized  to  increase  its  capi- 
tal to  200,000,000  lire,  of  which  only  150,000,000  lire  was 
paid  in. 

Thus  the  httle  Sardinian  bank,  by  the  absorption  of  all 
other  banks  of  issue  in  upper  Italy  and  the  establishment 

a  The  Banca  degli  Stati  Parmensi,  at  Parma,  had  a  capital  of  500,000 
lire,  of  which  300,000  was  paid  in. 

bThe  Banca  delle  Quattro  Legazioni,  at  Bologna,  had  a  capital  of 
200,000  Roman  scudi. 

c  This  institution  had  a  capital  of  2,100,000  florins.  It  issued  bank 
notes  called  cash  certificates  (buoni  di  cassa),  whose  average  circulation  was 
between  i,  200  000  and  1,500,000  florins. 

208 


The      Italian      Banks      of     Issue 

of  branches  and  subbranches  in  many  important  places 
throughout  the  country,  rose  to  the  position  of  the  lead- 
ing credit  institution  in  the  kingdom. 

From  1885  it  carried  on  a  great  mortgage  business,  a 
feature  of  which  was  the  issue  of  debentures. 

II. — The  Extinct  Banks  of  Issue. 

BANCA  NAZIONALE  TOSCANA — BANCA  TOSCANA  DI  CREDITO — 
BANC  A  ROM  AN  A. 

The  grand-ducal  government  of  Tuscany  established  in 
18 16  a  public  discount  bank,  the  capital  of  which  was 
advanced  by  the  State  and  which  was  invested  with  the 
privilege  of  issuing  bank  notes.  After  an  existence  of 
only  ten  years  this  bank  was  dissolved  and  was  succeeded 
by  a  new  discount  bank  (with  its  seat  at  Florence),  which 
had  a  capital  of  1,000,000  Tuscan  lire  (afterwards  increased 
to  1,250,000  lire)  and  had  the  right  to  issue  notes,  which 
were  guaranteed  by  the  Government  up  to  three  times 
the  amount  of  the  capital.  A  discount  bank  (joint-stock 
company)  was  established  at  Leghorn  {Livorno)  in  1837, 
with  a  capital  of  2,000,000  Tuscan  lire,  which  was  author- 
ized to  issue  notes  likewise  up  to  three  times  the  amount 
of  its  capital.  In  1841  the  Bank  of  Siena,  a  joint-stock 
bank,  with  a  capital  of  150,000  lire,  was  opened.  It  could 
issue  notes  up  to  the  amount  of  its  capital.  In  1846  the 
Bank  of  Arezzo,  a  joint-stock  bank,  was  established, 
with  a  capital  of  1 20,000  Tuscan  lire,  up  to  which  amount 
it  had  a  right  to  issue  notes.  Then  came  the  Bank  of 
Pisa  (1847),  a  joint-stock  bank  of  issue,  with  a  capital  of 
150,000  lire,  soon  raised  to  300,000  lire.  Its  circulation 
was  restricted  in  the  same  way  as  in  the  case  of  the  two 


209 


National    Monetary     Commission 

preceding  institutions.  In  1850  the  Bank  of  Lucca  was 
opened,  with  a  capital  of  299,666  Ure.  It  was  authorized 
to  issue  notes  up  to  twice  the  amount  of  its  capital  and 
was  allowed  to  make  them  of  very  small  denominations. 
Tuscany  had  now  six  banks  of  issue.  There  was  no  legal 
provision  in  regard  to  the  mutual  redemption  of  notes. 
In  1857  the  two  banks  at  Florence  and  Leghorn  were 
consolidated.  The  new  institution,  which  had  a  main 
office  in  each  city,  took  the  name  of  National  Bank  of 
Tuscany  {Banca  Nazionale  Toscana).  Its  capital  was 
fixed  at  8,000,000  Tuscan  lire  and  was  to  be  increased  by 
one-third  of  this  amount  every  fifth  year.  The  other 
banks  of  issue  were  permitted  to  change  their  status  and 
convert  themselves  into  branches  of  the  newly  constituted 
bank,  and,  in  accordance  with  this  provision,  the  banks 
of  Siena,  Pisa,  Lucca,  and  Arezzo  were  merged  in  i860 
in  the  Banca  Nazionale  Toscana.  The  capital  of  this 
institution  was  now  9,410,000  Tuscan  lire  and  was 
soon  raised  to  10,000,000  lire.  In  1864  it  opened  a  sub- 
branch  at  Pistoja  and  in  1873  one  at  Grosseto,  and  later 
other  subbranches  were  established.  The  act  of  August 
18,  1870,  prolonging  the  term  of  the  bank's  charter,  author- 
ized the  increase  of  its  capital  up  to  a  maximum  of 
50,000,000  lire.  The  administrative  council  of  the  bank, 
however,  fixed  the  capital  at  only  30,000,000  lire,  of 
which  21,000,000  lire  was  paid  in. 

In  March,  i860,  the  provisional  government  in  Tus- 
cany decreed  the  estabhshment  of  the  Tuscan  Credit 
Bank  for  the  industry  and  trade  of  Italy  {Banca  Tos- 
cana di  Credito  per  le  Industrie  e  il  commercio  dTtalia). 
Its   capital   was  supposed  to  be  fixed  at  40,000,000  lire 


The      Italian      Banks      of     Issue 

but  only  5,000,000  lire  was  paid  in.  This  institution,  in 
addition  to  all  regular  banking  business,  was  authorized 
to  issue  cash  certificates  (buoni  di  cassa)  up  to  three  times 
the  amount  of  the  paid-in  capital.  It  began  business  in 
1863.     It  was  located  at  Florence  and  had  no  branches. 

A  bank  was  established  at  Rome  as  early  as  1833. 
After  a  rather  inactive  existence  it  was  superseded  in 
pursuance  of  a  papal  decree  of  1850  by  a  larger  institu- 
tion, the  Bank  of  the  Pontifical  States  (Banca  dello  Stato 
Pontifico),  which  had  branches  at  Bologna  and  Ancona. 
Its  capital  was  to  amount  to  1,000,000  scudi  (5,375,000 
Italian  lire),  but  only  600,000  scudi  was  paid  in  when  it 
was  opened.  This  institution  had  the  monopoly  not 
merely  of  the  issue  of  notes  (in  denominations  of  i,  10, 
20,  50,  and  100  scudi),  for  which  a  one-third  reserve 
was  to  be  provided,  but  also  of  every  kind  of  banking 
business.  Its  charter  was  to  terminate  in  188 1.  The  two 
branches  were  abolished  in  1857  and  were  superseded  by 
the  Bank  of  the  Four  Legations  (Banca  dello  Quattro 
Lagazioni),  which  was  merged  in  186 1  in  the  Banca 
Nazionale  nel  Regno.  The  administration  of  the  Banca 
dello  vStato  Pontifico  was  anything  but  a  model  one,  so 
that  in  1866  the  papal  government  was  compelled  to  offer 
its  security  for  the  bank  notes.  At  the  close  of  1869  the 
circulation  v/as  30,700,000  Italian  lire  and  the  reserve 
10,900,000  lire. 

When  Rome  became  the  capital  of  the  Kingdom  of 
Italy,  in  1870,  the  notes  of  the  bank  were  declared  a  legal 
tender  in  the  province  of  Rome,  and  the  institution  was 
reconstituted  under  the  name  of  the  Roman  Bank  {Banca 
Romano).     It  renounced   its  monopoly  in  consideration 


21X 


National    Monetary     Commission 

of  a  payment  of  2,000,000  lire,  other  banks  being  per- 
mitted to  establish  branches  at  Rome.  In  1874  it  was 
authorized  to  increase  its  capital  to  15,000,000  lire,  which 
was  all  paid  in.  The  Government  at  the  same  time 
ceased  to  guarantee  the  security  of  the  notes.  This  bank 
did  not  make  use  of  the  privilege  of  establishing  branches." 

III. — The  Bank  of  Naples  and  the  Bank  of  vSicHvY. 

From  the  second  half  of  the  sixteenth  century  there 
were  large  pawn  banks  in  the  Kingdom  of  Naples.  At 
the  time  of  the  French  Revolution  the  Bourbon  Govern- 
ment seized  their  property  in  order  to  make  use  of  the 
funds  for  carrying  on  the  war  against  France.  The 
French  Government  sought,  by  means  of  a  law  enacted 
in  1806,  to  retain  one  of  the  old  banks — that  of  San  Gia- 
como — for  the  service  of  the  court  and  the  Government 
and  to  establish  a  bank  for  the  business  of  the  people, 
and  in  1808  it  proceeded  to  create  a  single  institution  in 
place  of  the  two — the  Bank  of  the  Two  Sicilies.  The 
necessary  capital,  however,  was  not  forthcoming.  Noth- 
ing came  of  a  further  attempt  in  1809,  but  the  restored 
Bourbon  Government  succeeded  in  bringing  into  existence, 
by  decree  of  December  12,  1816,  the  Bank  of  the  Two 
Sicilies.  This  was  a  dual  establishment — a  court  bank 
for  the  service  of  the  Government,  and  a  people's  bank, 
which  took  deposits  and  loaned  money  on  pledges.  The 
former  was  dependent  on  the  minister  of  finance  and 
the  latter  was  under  the  supervision  of  the  Government. 
The  employees  in  both  cases  were  government  officials. 
The  scheme  included  also  a  discount  bank  as  part  of  the 
establishment.     This  discount  bank,  which  was  opened 

o  For  later  history  see  sections  IV  and  V. 


The      Italian      Banks      of     Issue 

in  1818  with  capital  advanced  by  the  €^overnment,  was 
in  reaHty  nothing  more  than  a  department  of  the  court 
bank.  It  was  constantly  involved  in  the  financiering 
operations  of  the  royal  treasury.  Although  the  Govern- 
ment acted  rather  arbitrarily  in  the  matter  of  fixing 
the  rate  of  discount,  and  was  not  always  ready  to 
comply  with  the  provisions  determining  their  status, 
these  institutions  enjoyed  the  confidence  of  the  people 
in  a  high  degree,  and  they  were  extensively  utilized, 
all  the  more  so  as  they  were  the  only  institutions  of  the 
kind  in  the  country.  A  new  department  of  the  court 
bank  was  opened  at  Naples  in  1824,  designed  to  serve 
some  special  branches  of  governmental  and  local  admin- 
istration. Private  individuals  were,  however,  also  al- 
lowed to  avail  themselves  of  it,  so  that  the  distinction 
between  the  court  bank  and  the  people's  bank  prac- 
tically ceased  to  exist.  A  similar  department  of  the 
court  bank  was  established  much  later  (1857)  at  Bari. 
The  characteristic  business  of  the  Bank  of  the  Two 
Sicilies,  the  feature  that  made  it  popular,  was  the  de- 
posit business  {servizio  apodissario) .  The  certificates  of 
credit  {fedi  di  credito)  were  transferable  by  indorsement. 
They  might  be  converted  into  a  certificate  for  the  purpose 
of  making  a  succession  of  payments  by  means  of  cash 
orders,  called  ''polizze,"  each  payment  being  entered  on 
the  certificate,  which  thus  served  as  a  pass  book,  the  deposi- 
tor having  in  this  way  an  actual  account  current  with  the 
bank,  of  which  he  could  avail  himself  in  making  payments 
to  third  parties.  The  certificates  of  credit,  cash  orders, 
and  the  orders  for  small  amounts  (polizzini)  became  a 
legal  tender  and  were  redeemable  in  coin  at  the  tax  offices. 


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National    Monetary     Commission 

They,  as  well  as  the  drafts  (Mandati)  issued  by  the  bank, 
served  for  making  remittances,  a  quality  which  in  those 
days  of  defective  means  of  communication  was  very  use- 
ful and  highly  appreciated.  These  instruments  were 
therefore  very  extensively  used  in  the  Kingdom  of  Naples. 

The  Italian  Government  reorganized  the  Bank  of  the 
Two  Sicilies  by  a  series  of  decrees  between  i860  and  1866. 
The  institution,  which  was  renamed  the  Bank  of  Naples, 
was  deprived  of  its  character  as  a  state  bank  and  was 
transformed  into  an  independent  credit  corporation,  hav- 
ing its  own  administration  under  the  supervision  of  the 
Government.  In  1866  the  bank  began  to  issue  certificates 
of  credit  for  a  specific  sum,  transferable  without  indorse- 
ment and  drawn  on  the  cashier,  which  were  in  reality 
nothing  else  than  bank  notes.  In  the  same  year,  the  cur- 
rency in  Italy  having  come  down  to  a  paper  basis,  the 
certificates  of  credit  and  the  cash  orders  were  declared  a 
legal  tender  within  the  provinces  of  the  former  Kingdom 
of  Naples.  In  the  meanwhile  the  bank  proceeded  to 
establish  branches,  and  it  has  since  made  extensive  use  of 
this  privilege.  The  act  of  April  30,  1874,  conferred  upon 
the  Bank  of  Naples  the  character  of  an  actual  bank  of  issue, 
although  it  carried  on  the  business  also  of  a  pawn  ofiice, 
a  savings  bank,  and  a  mortgage  bank.  Subsequently  an 
agricultural  credit  department  was  added.  A  royal  decree 
of  September  23,  1874,  assigned  the  sum  of  48,750,000 
lire  as  a  permanent  fund  for  the  issue  of  notes. 

In  1843  the  Neapolitan  Government  had  established 
a  court  bank  at  Palermo  and  another  at  Messina.  They 
were  dependencies  of  the  Bank  of  Naples,  which,  at  that 
time,  as  we  have  seen,  was  styled  the  Bank  of  the  Two 


214 


The      Italian      Banks      of     Issue 

Sicilies.  The  revolution  of  1848  severed  the  connection, 
and  after  the  restoration  of  the  Bourbon  dynasty,  in  1849, 
the  separation  of  the  Sicilian  court  banks  from  the  Bank 
of  the  Two  Sicilies  was  consummated.  In  1850  the  two 
banks  were  consolidated  into  a  single  institution,  styled 
the  Royal  Bank  of  the  King's  Domain  in  Sicily  {Banco 
Regio  del  reali  Domini  al  di  Ih  del  Faro) .  The  institution 
was  a  bank  of  deposit  for  the  Government  and  for  the 
people.  It  had  the  same  arrangements  as  the  Bank  of 
Naples  in  the  matter  of  certificates  of  credit  and  cash 
orders,  which  were  a  legal  tender.  The  banks  served  the 
needs  of  the  financial  administration  of  Palermo  and  Mes- 
sina. The  royal  domains  in  Sicily  were  mortgaged  as 
security  for  the  deposits.  In  1858  two  newly  established 
discount  banks  at  Palermo  and  Messina  were  affiliated  with 
the  Banco  Rigio.  The  events  of  i860  affected  these  institu- 
tions in  a  most  serious  manner,  a  large  part  of  their  prop- 
erty being  taken  for  the  purposes  of  war.  The  gradual 
restoration  of  the  funds  enabled  them  to  resume  banking 
operations,  and  in  1867  they  were  transformed  into  the 
existing  Bank  of  Sicily  {Banco  di  Sicilia),  which  is  a 
public  corporation  and  no  longer  a  state  institution.  In 
1872  the  bank  was  authorized  to  establish  branches. 

In  1870  the  Bank  of  Sicily  began  to  issue  actual  bank 
notes  in  the  shape  of  certificates  of  credit  for  a  specific  sum, 
drawn  on  the  cashier  and  transferable  without  indorse- 
ment. The  act  of  April  30,  1874,  consummated  the  con- 
version of  the  institution  into  an  actual  bank  of  issue,  and 
in  the  same  year  a  fund  of  12,000,000  lire  was  assigned 
to  it  for  its  bank-note  circulation.  In  187 1  the  bank 
instituted  a  realty  credit  department  and  in  1888  an 
agricultural  credit  department. 

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National    Monetary     Commission 

IV. — Bank  Legislation  of  the  Period  i 866-1 892. 

A  royal  decree  of  May  i,  1866,  rendered  the  notes  of 
the  Banca  Nazionale  nel  Regno  a  forced  currency.  This 
institution  at  the  same  time  made  a  loan  of  250,000,000 
lire  to  the  Government  for  the  war  that  was  to  be  waged 
against  Austria.  The  other  banks  of  issue  (the  Bank  of 
Naples,  the  Bank  of  Sicily,  and  the  two  Tuscan  banks) 
were  authorized  to  continue  the  issue  of  certificates  of 
credit,  cash  orders,  cash  certificates,  and  bank  notes,  and 
these  instruments  were  to  remain  a  legal  tender;  that  is 
to  say,  they  were  to  retain  this  quality  in  the  provinces  in 
which  they  had  hitherto  possessed  it.  They  continued, 
however,  to  be  redeemable  in  coin  or  the  notes  of  the  Banca 
Nazionale.  Thus  arose  in  the  history  of  Italian  banking 
the  oft-recurring  distinction  between  forced  currency  and 
legal-tender  currency. 

The  Banca  Nazionale  nel  Regno  had  thus  acquired  an 
exceptional  status,  which  it  deserved  to  have,  inasmuch 
as  it  had  extended  its  network  of  branches  and  sub- 
branches  over  the  entire  Kingdom.  At  the  close  of  1873 
it  had  790,000,000  lire  in  circulation  on  account  of  the 
Government  (the  indebtedness  of  the  State  to  the  bank 
having  reached  this  sum)  and  353,300,000  Hre  on  its  own 
account,  and  it  had  in  addition  loaned  39,500,000  lire  to 
the  other  institutions,  which  had  immobilized  that 
amount  of  coin  in  their  vaults.  The  aggregate  amount 
of  outstanding  bank  notes  without  forced  circulation 
(including  the  notes  of  the  Banca  Romana,  which  had  been 
incorporated ^in  the  Italian  banking  system  in  187 1), 
certificates  of  credit,  and  cash  orders  was  at  that  time 
733.300>ooo  lire. 

216 


The      Italian      Banks      of     Issue 

In  spite  of  the  presence  of  notes  of  very  small  denomi- 
nations (50  centesimi,  i  lira,  2  lire)  up  to  an  aggregate  of 
101,300,000  lire,  there  was  a  considerable  volume  of 
legally  unauthorized  small  notes  in  circulation  that  had 
since  1866  been  taking  the  place  of  the  silver  fractional 
currency,  which  had  disappeared.  They  were  issued  by 
friendly  societies,  communes,  charitable  institutions,  sav- 
ings banks,  people's  banks,  mercantile  houses,  and  pri- 
vate individuals,  and  at  the  close  of  1873  they  amounted 
in  the  aggregate  to  33,300,000  lire.  The  necessity  of 
doing  away  with  this  abuse,  a  certain  hostility  in  political 
and  banking  circles,  as  well  as  among  business  men,  to- 
ward the  privileges  of  the  Banca  Nazionale,  and  the 
need  of  regulating  the  issues  of  the  Bank  of  Naples  and 
of  the  Bank  of  Sicily  on  the  same  basis  as  the  issues  of 
the  other  institutions,  brought  about  the  legislation  of 
April  30,  1874.  'I'his  placed  the  Banca  Nazionale  and  the 
five  other  banks  on  an  equality  as  regards  privileges  and 
duties.  All  the  six  institutions  were  organized  into  an 
association  (consorzio) ,  which  had  to  put  at  the  disposal 
of  the  Government,  in  place  of  the  previous  advances  of 
the  Banca  Nazionale,  i  ,000,000,000  lire  in  so-called  ''associ- 
ation  notes"  issued  in  denominations  ranging  from  50 
centesimi  to  1,000  lire.  These  association  notes  con- 
stituted, as  irredeemable  paper  money  (forced  cur- 
rency) ,  the  basis  of  the  entire  currency.  The  volume  of 
notes  outstanding  on  account  of  the  State  had  reached, 
at  the  close  of  1875,  the  sum  of  940,000,000  lire,  which 
was  never  exceeded,  as  the  Government  did  not  make 
full  use  of  its  right  to  an  issue  of  i  ,000,000,000  lire.  The 
banks  were  allowed  to  issue  their  own  notes,  redeemable 
over  the  counter  in  association  notes    in  denominations 


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National    Monetary     Commission 

ranging  from  50  to  1,000  lire,  up  to  three  times  their 
paid-in  capital  (in  the  case  of  the  Banca  Nazionale  and  the 
other  three  joint-stock  banks)  or  of  their  fixed  property 
(Bank  of  Naples  and  Bank  of  Sicily)  on  condition  of 
keeping  a  one-third  cash  reserve  against  circulation  in 
coin  and  association  notes.  Their  metallic  cash  might 
be  invested  only  in  securities  payable  in  coin.  The  bank 
notes  were  invested  with  the  quahty  of  a  legal  tender 
under  certain  restrictions.  The  issue  of  notes  by  private 
individuals  and  institutions  of  any  kind  was  strictly  for- 
bidden, and  in  a  few  years  this  mischievous  currency  was 
driven  from  circulation. 

The  legislation  of  188 1,  with  the  provisions  discontinu- 
ing forced  currency,  dissolved  the  association  of  the  banks 
of  issue.  The  coin  obtained  by  means  of  a  loan  was  used 
for  withdrawing  the  association  notes  from  circulation.  At 
the  same  time  the  issue  of  340,000,000  lire  of  treasury 
notes  was  decreed  (100,000,000  lire  in  5-lire  notes  and 
240,000,000  lire  in  lo-lire  notes).  First  of  all,  the  small 
notes  of  denominations  up  to  2  lire  were  replaced  by  frac- 
tional silver  currency.  The  privilege  of  issuing  notes  was 
to  terminate  for  all  six  banks  at  the  close  of  1889.  The 
Government  was  empowered  to  authorize  the  banks  to 
issue  notes  of  the  denomination  of  20  or  25  lire,  as  it 
thought  most  expedient.  The  denomination  was  fixed  by 
royal  decree  in  1883  at  25  lire. 

The  forced  currency  was  discontinued  in  1883.  The 
law  of  188 1  provided  that  the  reserve  against  bank  note 
circulation  should  consist  exclusively  of  coin.  In  pursu- 
ance of  a  royal  decree  of  1883  at  least  two-thirds  of  it  had 
to  be  in  gold.     As  a  matter  of  fact,  the  treasury  notes  were 


218 


The      Italian      Banks      of     Issue 

placed  on  a  par  with  gold  and  silver,  as  they  were  redeem- 
able in  coin  at  any  time  on  presentation  at  the  main 
treasury  of  the  Kingdom.  The  continuance  of  the  legal- 
tender  quality  of  the  notes  of  the  six  banks  of  issue  was 
extended  by  numerous  successive  enactments.  The  priv- 
ilege of  issuing  notes  which,  as  we  have  seen,  was  to  ter- 
minate at  the  close  of  1889,  was  prolonged  by  a  law  of  189 1 
to  the  close  of  1892. 


219 


PART    II.— THE    BANKS   SINCE    1893. 

V. — Causes  of  the  New  Legislation. 

All  who  had  been  observing  without  political  or  doc- 
trinaire bias  the  course  of  government  action  in  Italy  with 
respect  to  the  banks  of  issue  had  urged  the  necessity  of 
thoroughgoing  reform.  The  Italian  system  of  banks  of 
issue  was  a  curious  mixture  of  monopoly  and  plurality, 
which  had  all  the  disadvantages  and  none  of  the  advan- 
tages of  these  systems.  The  competition  of  the  six  banks 
that  had  the  exclusive  privilege  of  issuing  notes — institu- 
tions representing  every  grade  of  economic  capacity — had 
led  to  an  excessive  issue  of  paper  currency  for  the  promo- 
tion of  building  speculation  in  the  large  cities  (especially 
in  the  capital  and  in  Naples) ,  for  the  support  of  industrial 
undertakings  of  an  artificial  nature  and  necessarily 
doomed  to  failure,  as  well  as  of  ill-managed  credit  institu- 
tions, and  for  the  purpose  of  influencing  legislation  by  the 
lavish  use  of  money.  The  institution  which  was  economic- 
ally and  morally  most  corrupt  was  the  Banca  Romana, 
which,  ill  conducted  under  the  papal  administration,  had 
not  had  a  sound  existence  under  the  national  Government, 
and  was  the  veritable  poison  of  Italian  credit.  Its  rotten- 
ness was  fully  revealed  at  the  beginning  of  1893  by  an 
inquiry  instituted  at  the  instance  of  the  Chamber  of  Depu- 
ties. Its  suppression  was  inevitable,  and  as  the  condition 
of  the  other  institutions  was  not  a  favorable  one,  Parlia- 
ment had  to  make  up  its  mind  to  the  discussion  of  a  rather 


National    Monetary     Commission 

radical  reform,  which  was  embodied  in  the  act  of  August 
lo,  1893. 

This  act  provided  for  the  fusion  of  the  Banca  Nazionale 
Toscana  and  the  Banca  Toscana  di  credito  with  the  Banca 
Nazionale.  The  institution  thus  constituted  took  the  name 
of  the  Bank  of  Italy.  The  affairs  of  the  Banca  Romana 
were  to  be  wound  up,  and  so  there  were  left  but  three 
banks  of  issue — the  Bank  of  Italy,  the  Bank  of  Naples, 
and  the  Bank  of  Sicily.  The  laws  of  1894  ^-^d  1895  de- 
clared the  two  latter  banks  to  be  public  autonomous 
credit  institutions  under  the  supervision  of  the  Govern- 
ment, intrusted  the  liquidation  of  the  affairs  of  the  Banca 
Romana  to  the  Bank  of  Italy,  and  amended  the  law 
of  1893  in  important  respects.  In  spite,  however,  of 
further  statutory  enactments  (1895-96),  the  banks  were 
unable  to  improve  their  condition  materially.  Their 
troubles  were  mainly  due  to  two  causes.  A  large  amount 
of  paper,  which  had  been  discounted  for  individuals 
and  concerns  ruined  or  temporarily  embarrassed,  re- 
mained unpaid,  and  the  banks  were  obliged  to  take  in 
place  of  what  was  due  them  a  large  quantity  of  securities 
and  real  estate.  Furthermore,  as  they  were  not  merely 
banks  of  issue,  but  also  mortgage  banks,  they  were  com- 
pelled, by  reason  of  the  continuous  and  severe  agricultural 
depression  and  the  crisis  in  the  building  trade  in  some  of 
the  large  cities  (in  particular,  Rome),  to  dispossess  many 
owners  of  lands  and  buildings,  and  thus  to  burden  them- 
selves with  a  fresh  mass  of  parcels  of  ground  and  houses. 
The  mortgage  business  had  indeed  been  delegated,  in  the 
case  of  each  of  these  institutions,  to  an  officially  distinct 


222 


The      Italian      Banks      of     Issue 

administrative  branch,  but  the  regular  banking  depart- 
ment was  constantly  making  fresh  advances  to  this  sepa- 
rate administrative  branch  on  current  account,  and  as 
these  mortgage  operations  had  been  continually  swal- 
lowing up  new  capital,  the  aggregate  of  the  amounts  thus 
advanced  constituted  a  large  sum  to  the  credit  of  the 
banking  department,  on  which  it  could  not  easily  realize. 
In  the  case  of  the  Bank  of  Naples,  for  example,  an  amount 
of  money  nearly  equal  to  its  entire  free  capital  (patrimo- 
nio)  had  been  gradually  absorbed  by  the  realty  credit 
department,  which,  nevertheless,  was  on  the  verge  of  bank- 
ruptcy. These  two  categories  of  bad  assets  constituted  in 
the  balance  sheets  of  the  banks  the  so-called  "  immobilized 
assets"  {partite  immohilizzate) ,  and  to  this  were  added  the 
legally  no-longer-permissible  assets  acquired  previous  to 
the  law  of  1893.  The  principal  aim  of  the  fresh  legislation 
of  1897  and  1898  was  to  remove  the  dangerous  conse- 
quences of  this  untenable  condition  and  to  remedy  it  as  fast 
and  as  far  as  possible.  The  previously  initiated  liquidation 
of  the  mortgage  institutions  connected  with  the  three 
banks  of  issue  was  definitively  sanctioned,  and  arrange- 
ments were  made  for  effecting  it  with  the  least  possible  loss 
to  the  banks  and  the  creditors.  Every  faciHty  was  afforded, 
also,  for  the  Hquidation,  or,  as  it  was  termed,  "mobiliza- 
tion," of  the  "immobilized  assets"  that  figured  on  the 
balance  sheets,  especially  in  the  way  of  accommodations 
on  the  part  of  the  fiscal  administration  and  extensions  in 
the  matter  of  payments. 

In  order  to  secure  and  facilitate  the  application  of  the 
new  legislative  injunctions,  energetic  men  were  placed  at 


39781°— II 13  223 


National    Monetary     Commission 

the  head  of  the  institutions.  The  Government  undertook 
the  task  of  codifying  most  of  the  laws  relating  to  the  banks 
of  issue,  and  the  result  was  the  legal  code  bearing  the  date 
of  October  9,  1900.  The  duration  of  the  legal-tender 
quality  of  the  bank  notes  was  extended  year  by  year,  and 
the  lawmaker  made  constant  use  of  the  opportunities  thus 
afforded  in  order  to  furnish  fresh  facilities  to  the  banks  for 
healing  the  wounds  of  the  past.  In  the  years  1 899-1 903 
further  improvements  were  made  in  the  statutes  of  the 
Bank  of  Italy  and  the  provisions  relating  to  the  other 
two  banks. 

The  extraordinary  development  of  industry,  especially  in 
upper  and  middle  Italy,  the  strides  made  by  commerce,  and 
the  progress  in  agriculture  have  in  the  last  few  years  added 
greatly  to  the  riches  of  the  country.  Emigration,  although 
it  has  shown  an  unexpected  and  almost  pathological  in- 
crease, has  afforded  to  the  Italians  permanently  or  tempo- 
rarily settled  abroad  the  means  of  sending  or  bringing 
home  large  sums  of  money,  while  the  expenditure  of  the 
ever-increasing  number  of  foreigners  visiting  Italy  has  con- 
tributed an  important  item  on  the  credit  side  in  the  inter- 
national balance  of  payments.  In  spite  of  the  increased 
expenditure,  the  financial  condition  of  the  Kingdom  has 
been  considerably  improved.  The  better  credit  of  the 
State  made  it  possible  in  1906  to  reduce  the  rate  of  interest 
on  the  public  debt.  This  improvement  in  the  economic 
and  financial  state  of  the  Kingdom  has  naturally  meant  for 
the  banks  of  issue  a  progressive  development  of  their  busi- 
ness and  has  afforded  them  the  means  of  making  a  sounder 
selection  in  their  transactions  and  of  effecting  more  readily 


324 


The     Italian      Banks      of     Issue 

the  liquidation  of  their  immobiUzed  assets.  Great  credit 
is  due  to  the  men  at  the  head  of  these  institutions,  and  we 
may  point  especially  to  the  splendid  manner  in  which  the 
Bank  of  Italy  weathered  the  financial  crisis  of  1907. 

In  spite  of  the  progress  thus  made,  the  moment  had  not 
yet  arrived,  in  the  opinion  of  our  legislators,  for  removing 
the  forced  currency  of  the  bank  notes,  and  by  the  act  of 
December  29,  1907,  its  duration  was  extended  to  the  close 
of  1908.  On  the  occasion  of  the  enactment  of  this  law 
important  measures  were  framed  (among  them  one  raising 
the  normal  maximum  of  bank-note  circulation)  in  order  to 
make  the  legal  provisions  conform  more  closely  to  the 
present  condition  of  the  banks  of  issue  and  the  economic 
and  financial  state  of  the  country.  These  measures  were 
embodied  in  the  act  of  December  31,  1907.  By  the  act  of 
December  24,  1908,  the  duration  of  the  forced  currency 
of  the  bank  notes  was  extended  to  the  close  of  1909,  and 
by  the  act  of  December  26,  1909,  to  the  close  of  1910.  A 
fresh  revision  of  the  statutes  of  the  banks  took  place  in 
1908  and  1909;  the  act  of  July  15,  1909,  embodied  pro- 
visions regarding  interest-bearing  deposits,  and  finally  all 
the  laws  on  the  banks  of  issue  (with  exception  of  the  act 
of  August  8,  1895,  Appendix  Q,  T.)  were  codified  by  the 
act  of  February  3,  19 10. 

VI. — Character  and  Administration  of  the  Banks 

OF  Issue. 

THE    BANK    OF   ITALY. 

The  Bank  of  Italy  is  a  joint-stock  company.  The  shares, 
which  are  registered,  are  nominally  of  800  Hre.  Their 
nominal  value  was  originally   1,000  lire,  but  they  were 


225 


National    Monetary     Commission 

reduced  in  1894  to  900  lire  and  in  1897  to  800  lire.  The 
amount  actually  paid  in  was  700  lire,  but,  as  will  be  ex- 
plained later  on,  the  paid-in  capital  is  put  down  as  having 
been  only  600  lire  per  share. 

The  central  offices  are  at  Rome.  There  are  numerous 
branches,  subbranches,  "agencies,"  etc. 

At  the  head  of  the  administration  is  the  director-gen- 
eral, who  is  assisted  by  the  vice-director-general.  They 
are  elected  and  retired  by  the  superior  council  of  the  bank, 
but  they  have  to  be  confirmed  by  the  Government. 

The  superior  council  {consiglio  superiore)  is  elected  in 
the  following  manner :  The  administrative  council  of  each 
branch  {sede)  appoints  two  councillors  from  its  midst. 
Five  additional  councillors  are  chosen  by  the  general 
assembly  of  the  shareholders  from  the  midst  of  the  remain- 
ing members  of  the  administrative  councils  of  the  main 
offices  or  branches. 

The  director-general  is  a  member  of  the  superior  council. 
The  vice-director-general  may  attend  the  meetings,  but  he 
has  no  vote  unless  he  takes  the  place  of  the  director-general 
when  the  latter  happens  to  be  absent.  The  superior  coun- 
cil, among  other  important  functions,  appoints  the 
employees  of  the  bank  on  the  initiative  of  the  director- 
general. 

The  directory  (director-general  and  vice-director-gen- 
eral) and  superior  council  carry  on  the  general  administra- 
tion of  the  bank.  Their  management  is  supervised  by  the 
syndics  (sindaci) ,  who  are  chosen  annually  by  the  general 
assembly  of  the  shareholders  to  the  number  of  five. 

The  regular  meeting  of  the  shareholders  is  held  annually 
at  Rome,  and  extraordinary  meetings  are  held  whenever 


226 


The      Italian      Banks      of     Issue 

it  appears  necessary,  in  conformity  with  certain  statutory 
provisions. 

Each  branch  has  a  director,  appointed  by  the  superior 
council  at  the  instance  of  the  director -general,  and 
an  administrative  council  {consiglio  di  reggenza)^  com- 
posed of  from  seven  to  twelve  (in  exceptional  cases,  four- 
teen) councillors  and  of  not  more  than  four  censors.  The 
precise  number  of  councillors  and  censors  is  fixed  by  the 
superior  council. 

The  councillors  and  censors  are  elected  for  a  term  of  six 
years  by  the  general  assembly  of  the  shareholders,  which 
meets  for  that  purpose  at  the  various  main  offices.  One- 
half  retire  every  three  years,  the  general  assembly  of  the 
shareholders  being  therefore  required  to  meet  every  third 
year  at  each  of  the  main  offices.  Each  branch  has 
from  eight  to  fifteen  discount  councillors  (the  precise 
nimiber  being  fixed  by  the  superior  council)  elected  for  a 
term  of  two  years,  one-half  retiring  annually.  They  are 
chosen  by  the  administrative  council  of  the  main  office 
from  a  double  list,  indorsed  by  the  director-general.  The 
discount  commission  is  composed  of  the  director,  two  ad- 
ministrative councillors,  and  one  discount  councillor. 

Each  subbranch  (succursale)  has  a  director  appointed  by 
the  superior  council  at  the  instance  of  the  director-general, 
several  censors  (as  many  as  may  be  deemed  necessary), 
appointed  by  the  superior  council  and  confirmed  by  the 
syndics,  and  from  four  to  eight  discount  councillors,  elected 
by  the  superior  council  for  a  term  of  two  years,  one-half 
retiring  annually.  The  discount  commission  is  composed 
of  the  director  and  two  discount  councillors. 


227 


National    Monetary     Commission 

Each  agency  {agenzia)  is  under  the  management  of  an 
agent,  appointed  by  the  superior  council  on  the  initiative 
of  the  director-general. 

THE    BANK    OF   NAPLES. 

The  Bank  of  Naples  is  an  autonomous  public  credit 
institution  under  the  supervision  of  the  Government,  hav- 
ing its  own  property  or  free  capital.  The  central  seat  of 
administration  is  at  Naples. 

It  has  a  peculiarly  constituted  general  council  {consiglio 
generale).     This  is  composed  as  follows: 

(a)  The  Neapolitan  representation,  consisting  of  the 
mayor  of  Naples,  the  presiding  officer  of  the  Council  of 
the  province  of  Naples,  the  president  of  the  Neapolitan 
Chamber  of  Commerce,  a  delegate  of  the  municipal  Coun- 
cil of  Naples,  a  delegate  of  the  provincial  Council,  and  a 
delegate  of  the  Chamber  of  Commerce. 

(6)  A  delegate  of  the  Council  of  the  province  of  Bari 
and  a  delegate  of  the  Chamber  of  Commerce  of  the  city 
of  Bari. 

(c)  A  delegate  of  the  provincial  Council  of  each  of 
the  following  provinces:  Aquila,  Avellino,  Benevento, 
Campobasso,  Caserta,  Catanzaro,  Chieti,  Cosenza,  Foggia, 
Ivccce,  Potenza,  Reggio-Calabria,  Salerno,  and  Teramo. 

(d)  A  delegate  from  each  of  the  chambers  of  commerce 
in  the  other  provinces  of  the  Kingdom  in  which  the  bank 
has  a  main  office. 

{e)  The  director-general  and  the  two  administrative 
councillors  appointed  by  the  Government. 

The  delegates  are  elected  for  a  term  of  two  years.  The 
general  council  has  its  regular  meeting  at  Naples  once  in 


228 


The      Italian      Banks      of     Issue 

the  course  of  the  first  three  months  in  each  year,  and  may 
be  convened  again  later  in  extraordinary  session  con- 
formably to  special  statutory  provisions.  Its  functions 
correspond  in  the  main  to  those  of  the  general  assembly 
of  the  shareholders  of  joint-stock  banks. 

The  managing  body  is  the  administrative  council  {con- 
siglio  di  amministrazione) .  This  comprises  the  following 
members:  The  director-general,  who  is  appointed  by  the 
Government  (by  royal  decree) ;  three  ordinary  delegates 
and  one  substituting  delegate,  who  are  chosen  by  the 
general  council  from  its  midst;  and  two  administrative 
councillors,  appointed  by  royal  decree  (one  retiring  each 
year),  who  are  reeligible.  The  general  secretary  of  the 
bank  is  appointed  by  the  finance  minister  from  a  list  of 
three  persons  submitted  by  the  administrative  council. 
The  directors  of  each  of  the  branches  and  of  the  sub- 
branches  are  appointed  by  the  administrative  council  on 
the  initiative  of  the  director-general. 

Each  branch  and  subbranch  has  from  eight  to  twelve 
discount  commissioners,  appointed  by  the  administrative 
council  (which  fixes  the  number)  for  one  year  on  the  initi- 
ative of  the  director-general.  The  discount  commission 
consists  of  the  director  and  two  commissioners. 

The  bank  has  a  savings  institution  and  a  pawn  office. 

THE    BANK    OF   SICIIvY. 

The  Bank  of  Sicily  is  an  autonomous  public  credit 
institution  under  the  supervision  of  the  Government, 
having  its  own  property  or  free  capital.  The  central  seat 
of  administration  is  at  Palermo. 


229 


National    Monetary     Commission 

It  has,  like  the  bank  of  Naples,  a  general  council  {con- 
siglio  generate).    This  body  is  constituted  as  follows: 

(a)  The  representation  of  Palermo,  consisting  of  the 
mayor  of  the  city  of  Palermo,  the  presiding  officer  of  the 
Council  of  the  province  of  Palermo,  the  president  of 
the  Chamber  of  Commerce  of  Palermo,  a  delegate  of  the 
municipal  Council  of  Palermo,  a  delegate  of  the  provincial 
Council,  and  a  delegate  of  the  Chamber  of  Commerce. 

(6)  The  mayors  of  Messina,  Catania,  and  Girgenti,  a 
delegate  of  the  Chamber  of  Commerce  of  each  of  these 
cities,  and  a  delegate  of  the  Council  of  each  of  the  prov- 
inces of  Messina,  Catania,  and  Girgenti. 

(c)  A  delegate  of  the  Council  of  each  of  the  provinces 
of  Caltanissetta,  Syracuse  (Siracusa) ,  and  Trapani. 

(d)  A  delegate  from  the  Chamber  of  Commerce  of  each 
of  the  other  provinces  of  the  Kingdom  in  which  the  bank 
has  established  a  main  office. 

(e)  The  director-general  and  the  two  administrative 
councillors  appointed  by  the  Government. 

The  delegates  are  elected  every  second  year. 

The  general  council  has  its  regular  meeting  at  Palermo 
once  in  the  course  of  the  first  three  months  in  each  year 
and  may  be  convened  again  later  in  extraordinary  session, 
conformably  to  special  statutory  provisions.  Its  func- 
tions, as  is  the  case  with  the  Bank  of  Naples,  correspond, 
in  the  main,  to  those  of  the  general  assembly  of  the  share- 
holders of  joint-stock  banks. 

With  respect  to  its  administrative  personnel,  the  Bank 
of  Sicily  is  organized  in  the  same  manner  as  the  Bank  of 
Naples.  It  has  an  agricultural  credit  department  and  a 
savings  bank 


230 


The      Italian      Banks      of     Issue 

VII. — The  System  of  Branch  Banks. 

The  banks  of  issue  are  permitted  to  maintain  branches, 
sub-branches,  and  agencies,  to  have  correspondents,  and 
to  make  use  of  banking  houses  as  their  representatives  in 
the  redemption  of  their  notes. 

The  branches  {sedi)  are  those  offices  which  are  located 
in  the  principal  cities  or  which  have  the  largest  volume 
of  business.  These  two  conditions  usually  coincide.  The 
banks  are  obliged  to  maintain  a  main  office  at  the  capital. 

The  agencies  (agenzie)  are  those  offices  which  have 
been  established  by  the  bank  at  its  own  expense  and  are 
managed  by  its  own  officials,  and  whose  business  it  is 
to  collect  bills,  to  cash  the  drafts  of  the  bank  and  the 
negotiable  paper  so-called  {vaglia  cambiari) ,  and  to  redeem 
its  notes. 

The  Bank  of  Italy  is  obliged  to  maintain  a  branch 
or  a  subbranch  at  the  capital  of  each  of  the  69  prov- 
inces. It  may  establish  sub-branches  in  other  cities  also, 
and  it  has  done  this  to  some  extent.  In  the  establishment 
and  abolition  of  branches  and  subbranches  and  in  the 
transformation  of  sub-branches  into  agencies  the  action 
of  the  bank  requires  the  sanction  of  the  Government, 
which  is  given  simply  in  the  form  of  a  ministerial  order. 
In  the  establishment  and  suppression  of  the  agencies  the 
action  of  the  bank  is  untrammeled. 

The  Bank  of  Naples  and  the  Bank  of  Sicily  are  at  liberty 
to  abolish  the  existing  branches  and  sub-branches  or  to 
estabHsh  new  ones  in  the  capitals  of  the  provinces,  but 
the  establishment  and  suppression  of  such  branches  can 
be  effected  onlv  bv  royal  decree,  at  the  instance  of  the 


231 


National    Monetary     Commission 

administrative  council  with  the  consent  of  the  general 
council.  In  the  case  of  the  agencies  an  order  of  the 
finance  minister  is  required  in  place  of   a   royal  decree. 

The  correspondents  are  the  credit  institutions  and 
private  banks  which  collect  bills  and  cash  drafts,  etc.,  for 
account  of  the  banks  of  issue. 

These  credit  institutions  and  private  banks,  as  well  as 
the  savings  banks  (as  a  general  thing,  in  the  larger 
cities) ,  may,  on  due  notice  being  given  to  the  Government, 
be  charged  by  the  banks  of  issue  with  the  redemption  of 
their  notes.  They  are  invested  by  the  bank  of  issue  with 
the  power  of  "representation  for  redemption"  (rappre- 
sentanza  pel  cambio).  This  takes  place  usually  in  those 
provinces  in  which  the  bank  of  issue  has  no  offices  of  its 
own  belonging  to  any  one  of  the  three  categories  above 
mentioned.  In  such  cases  the  bank  selects  a  representa- 
tive, whose  place  of  business  is  generally  the  capital  of 
the  province.  The  bank  may,  however,  have  several 
representatives  in  the  same  province.  The  banks  of  issue 
may  perform  mutual  services  in  respect  of  the  redemption 
of  their  notes.  The  Bank  of  Naples,  for  example,  repre- 
sents the  Bank  of  Sicily  at  a  number  of  places. 

The  following  table  gives  the  statistics  of  the  branch 
offices,  etc.,  of  the  banks  of  issue.  The  figures  are  for 
the  end   of  September,  1909. 


Bank. 

Branches 

(sedi). 

Sub-branches 
(succursali). 

Agencies 
(agenzie). 

Representa- 
tives for  the 
redemption 

of  notes 

(rappresen- 

tanze  pel 

cambio). 

Bank  of  Italy.. 

II 
12 

69 

IS 

4 

22 
10 
21 

Bank  of  Naples.    . 

35 
69 

Bank  of  Sicily 

232 


The     Italian      Banks      of     Issue 

There  are  a  great  many  correspondents,  each  of  the 
banks  having  hundreds.  They  are  to  be  found  even  in 
very  small  places,  and  their  number  is  constantly  increasing 
with  the  foundation  of  new  cooperative  credit  associations, 
regular  credit  associations,  and  private  banks. 

VIII. — Capital  of  the  Banks  of  Issue. 

The  Bank  of  Italy  (joint-stock  bank)  has  a  nominal 
capital  of  240,000,000  lire,  the  paid-in  capital  being 
180,000,000  lire.  The  Bank  of  Naples  and  the  Bank  of 
Sicily  (public  credit  institutions)  have  a  fixed  property 
amounting,  respectively,  to  50,000,000  and  12,000,000  lire. 

The  nominal  capital  of  the  Bank  of  Italy  is  divided  into 
300,000  shares.  The  paid-in  capital  amounts  actually  to 
210,000,000  lire;  that  is  to  say,  700  lire  was  paid  in  for  each 
share.  But  in  order  to  make  it  possible  to  devote  a  larger 
quota  of  the  net  earnings  to  the  improvement  of  the  condi- 
tion of  the  bank,  which  had  been  seriously  compromised  by 
the  unsound  management  to  which  we  have  referred,  this 
paid-in  capital  was  reduced  on  the  books  by  30,000,000 
lire,  so  as  to  be  reckoned  at  only  180,000,000  lire;  that  is  to 
say,  the  amount  paid  in  for  each  share  is  considered  to 
have  been  600  lire  instead  of  700.  It  was  arranged,  how- 
ever, that  the  bank,  after  the  expiration  of  an  interval  of 
not  less  than  fifteen  years,  beginning  with  1893,  if  it  had 
fulfilled  its  legal  obligations,  would  be  empowered  to  restore 
those  30,000,000  lire  to  its  shareholders  in  annual  quotas 
not  exceeding  6,000,000  lire.  But  when  the  time  arrived 
(1909),  it  was  considered  best  not  to  turn  over  the  sum 
that  was  available  to  the  shareholders  but  to  devote  it  to 
an  extraordinary  reserve  fund.      (See  section  XI). 


233 


National    Monetary     Commission 

As  the  Bank  of  Naples  and  the  Bank  of  Sicily  had  like- 
wise invested  part  of  their  funds  in  insecure  loans  and 
unsafe  mortgage  operations,  and  as  the  figures  given  above 
originally  represented  in  part  not  actually  existing  property 
but  merely  the  amount  due  the  banking  department  by 
the  realty  credit  department,  it  was  provided  that  these 
two  banks  should  for  a  term  of  fifteen  years,  beginning  with 
1893,  add  all  their  net  earnings  to  their  free  capital 
except  what  was  required  to  meet  their  legal  obligations, 
and  this  is  what  was  actually  done. 

IX. — The  Issue  of  Bank  Notes. 

The  three  institutions  which  we  have  here  described  have 
the  exclusive  right  to  issue  bank  notes,  the  privilege  having 
been  conferred  for  a  period  of  twenty  years,  1893-19 13, 
with  a  conditional  extension  for  ten  years. 

The  chief  function  of  the  banks  is  to  issue  notes  for  the 
needs  of  trade.  The  so-called  ''  normal  maximum  limit  " 
of  the  issue  is  fixed  for  the  respective  institutions  as 
follows : 

Lire. 

Bank  of  Italy 660,000,000 

Bank  of  Naples 200,000,000 

Bank  of  Sicily 48,  000,  000 

Total 908,  000,  000 

The  Bank  of  Sicily  is  empowered  to  issue  an  additional 
10,000,000  lire,  which  amount,  however,  has  to  be  devoted 
to  the  assistance  of  the  sulphur  industry. 

The  cash  reserve  has  to  be  not  less  than  40  per  cent  of 
the  amount  of  the  outstanding  notes.  The  banks  are, 
however,  allowed  to  exceed  the  normal  maximum  Umits 
under  the  following  conditions: 


234 


The      Italian      Banks      of      Issue 

(a)  They  may  issue  up  to  any  amount,  provided  there 
is  a  cash  reserve  against  the  full  amount  of  the  excess 
above  the  normal  maximum. 

(b)  They  may  exceed  the  normal  maximum,  provided 
there  is  a  40  per  cent  covering  for  the  entire  issue,  on 
condition  of  the  payment  of  a  special  tax  on  circulation, 
which  is  levied  only  on  the  excess.  This  tax  is  one- 
third  of  the  rate  of  discount  when  the  excess  is  not  more 
than  50,000,000  lire  in  the  case  of  the  Bank  of  Italy, 
15,000,000  Hre  in  that  of  the  Bank  of  Naples,  and  4,000,- 
000  lire  in  that  of  the  Bank  of  Sicily.  It  is  two-thirds 
of  the  rate  of  discount  when  the  excess  is  not  less  than 
50,000,000  lire  and  not  more  than  100,000,000  lire  for 
the  Bank  of  Italy,  between  15,000,000  and  30,000,000 
lire  for  the  Bank  of  Naples,  and  between  4,000,000  and 
8,000,000  lire  for  the  Bank  of  Sicily.  It  is  equal  to  the 
full  rate  of  discount  when  the  excess  is,  respectively, 
between  100,000,000  and  150,000,000  lire,  between  30,- 
000,000  and  45.000,000  lire,  and  between  8,000,000  and 
12,000,000  Hre. 

When  the  excess  is  above  150,000,000,  45,000,000,  and 
12,000,000  lire,  respectively,  an  extraordinary  tax  of  7>^ 
per  cent  is  levied  on  the  additional  amount  over  and 
above  these  figures.  This  extraordinary  tax  is  also  im- 
posed in  case  the  entire  40  per  cent  cover  is  not  pro- 
vided, even  when  the  normal  maximum  limit  is  not  ex- 
ceeded. It  must  be  borne  in  mind  that  so  much  of  the 
circulation  as  corresponds  to  the  cash  cover  is  not  taxed. 

It  has  been  sought  in  this  way  to  maintain  the  neces- 
sary elasticity  of  the  bank-note  circulation  and  to  prevent 


235 


National    Monetary     Commission 

the  danger  of  an  excessive  issue  for  the  purposes  of  spec- 
ulation. 

As  the  banks  are  under  the  obhgation  to  make  ad- 
vances to  the  State  (at  the  present  time,  up  to  the  sum 
of  125,000,000  Hre),  the  corresponding  issue  of  notes  is 
not  included  in  the  normal  maximum  issue,  and  a  cash 
cover  of  only  one-third  is  required. 

The  cash  cover,  or  metallic  reserve,  must  consist,  up 
to  at  least  three-fourths,  of  gold  coin  or  gold  bullion, 
and  the  remaining  one-fourth  must  be  made  up  of  coins 
of  the  Latin  League  nine-tenths  fine  and  of  subsidiary  silver 
currency  (this  last  not  to  exceed  2  per  cent  of  the  total 
reserve) .  In  place  of  metal,  however,  the  following  securi- 
ties, payable  in  gold  or  in  silver  coin  of  the  Latin  League 
(nine-tenths  fine)  may  be  partially  substituted :  Foreign 
bills  of  exchange;  foreign  treasury  bills;  certificates  of 
sums  deposited  in  current  account  in  foreign  banks.  The 
quota  of  such  substituted  funds  shall  not  exceed  11 
per  cent  of  the  total  cash  reserve  in  the  case  of  the  Bank 
of  Italy,  15  per  cent  in  that  of  the  Bank  of  Naples,  and 
15  per  cent  in  that  of  the  Bank  of  Sicily.  It  is  further 
provided  that  the  above-mentioned  certificates  of  deposit 
shall  never  exceed  3K  P^r  cent  of  the  legal  circulation. 

The  cash  cover,  or  metalHc  reserve,  must  under  no 
circumstances  be  allowed  to  fall  below  the  following 
figures: 

Lire 

Bank  of  Italy 400.  000.  000 

Bank  of  Naples 120,000,000 

Bank  of  Sicily 28,000,000 

This  metallic  reserve  must  be  kept  absolutely  separate 
from  the  other  assets  of  the  bank,  and  the  State  is  to 
exercise    a    special    supervision    over    its    maintenance. 

236 


The      Italian      Banks      of     Issue 


This  reserve  guarantees  the  bank  notes,  but  inasmuch  as 
the  holders  of  these  notes  can  in  no  way  derive  any 
benefit  from  it  because  there  can  be  no  redemption  out 
of  this  reserve,  either  at  present  or  in  future  time, 
as  will  be  explained  later  on,  they  have  been  accorded 
a  preferred  claim  over  the  following  assets  of  the  bank : 
The  gold  coin,  gold  bullion,  and  legal  silver  coin  in 
the  possession  of  the  bank  not  included  in  the  above- 
mentioned  minimum  metallic  reserve  nor  set  aside  as 
a  reserve  against  sight  liabilities;  the  Italian  treasury 
bills  acquired  by  the  banks  and  other  securities  issued  by 
the  Italian  Government  or  guaranteed  by  it ;  the  foreign 
bills  not  reckoned  as  part  of  the  metallic  reserve;  sums 
due  to  the  bank  on  account  of  loans  on  collateral  and 
secured  by  such  collateral,  including  sums  due  from  the 
Government  on  account  of  advances  and  guaranteed  by 
securities  deposited  by  the  Government;  domestic  bills  of 
exchange  as  much  as  may  be  needed  to  make  up  the 
required  sum. 

The  following  will  serve  as  an  illustration: 
The  Bank  of  Italy  had  on  September  30,  1909,  a  total 
circulation  of  1,467,167,300  lire.  Up  to  the  sum  of 
400,000,000  lire  these  bank  notes  were  secured  by  this 
minimum  metallic  reserve.  There  remained,  therefore, 
1,067,167,300  lire.  For  this  there  was  the  following 
security : 

Lire. 

Gold  and  legal  silver  coin 689,  194,527 

Italian  treasury  bills  and  other  government  obligations  or 

securities  guaranteed  by  the  Government 214,  137,  718 

Foreign  bills  of  exchange 1,838,  090 

Sums  due  on  account  of  loans 78,  953,  004 

Domestic  bills  of  exchange 83,  043,  961 

Total 1,067,  167,300 


237 


National    Monetary     Commission 

These  1,067,000,000  lire  represent  the  assets  in  regard 
to  which  the  holders  of  the  notes  had  the  above-mentioned 
preference  on  September  30,  1909.  Of  course,  as  has  been 
seen,  the  above-mentioned  400,000,000  lire  of  the  metallic 
reserve  are  a  security  for  the  notes,  but  it  is  certain  that 
the  actual  circulation  of  the  Bank  of  Italy  in  peaceful  times 
will  never  sink  below  400,000,000  lire,  and  consequently 
these  400,000,000  lire  of  bank  notes  will  never  be  presented 
for  redemption,  even  if  there  should  be  a  redemption  of 
notes.  In  case  of  war  the  Government  will  appropriate 
this  metallic  reserve  and  make  forced  currency  out  of  a 
corresponding  amount  of  bank  notes. 

The  banks  are  not  obliged  to  redeem  their  notes  so  long 
as  the  treasury  notes  are  irredeemable.  They  may,  if 
they  choose,  redeem  them  in  treasury  notes  (as  is  usually 
done) ,  or  they  may,  if  they  so  desire,  redeem  them  in  coin, 
making  use  of  the  metallic  money  which  they  may  have 
on  hand  over  and  above  the  minimum  reserve,  but  in 
that  case  they  have  the  right  to  exact  from  the  holder  of 
the  notes  the  premium  on  coin  set  on  that  day  at  the 
nearest  exchange. 

The  treasury  notes  are  issued  in  denominations  of  5, 
10,  and  25  lire,  but  the  25-lire  notes  are  now  being  with- 
drawn from  circulation.  The  total  issue  is  not  permitted 
to  exceed  the  sum  of  465 ,000,000  lire.  The  total  of  the  out- 
standing notes  on  September  30,  1909,  was  433,61 1,895  lire. 
This  national  paper  money  is  irredeemable ;  it  is  a  currency 
with  forced  circulation.  There  is,  however,  a  guaranty 
fund,  consisting  of  a  gold  reser^^e  that  may  not  be  touched, 
which  must  not  be  less  than    151,250,000    lire.     It   has 


^38 


The      Italian      Banks      of     Issue 

recently  exceeded  this  sum,  having  amounted  on  Sep- 
tember 30,  1909,  to  175,175,805  lire. 

The  notes  of  the  banks  are  restricted  to  the  denomina- 
tions of  50,  100,  500,  and  1,000  lire. 

The  aggregate  of  the  outstanding  notes  of  these  legal 
denominations  on  September  30,  1909,  was  as  follows: 


Denominations. 

Lire. 

Per  cent. 

1,000  lire 

271, 138, 000 
307, 888, 000 
730, 381, 800 
630, 816, 600 

13-98 
15-87 
37-64 
32-SI 

500  lire          -    -    __    _- 

50  lire.      

Total... 

1,940, 224, 400 

At  the  same  date  the  three  banks  of  issue  held  notes  to 
the  aggregate  amount  of  709,400,000  lire. 

The  form  of  the  notes  in  each  denomination  is  pre- 
scribed by  an  ordinance  of  the  minister  of  finance,  as  well 
as  the  number  of  notes  that  may  be  turned  out  at  each 
printing.  The  manufacture  of  notes  and  the  destruction 
of  old  or  mutilated  ones  are  carried  on  under  the  constant 
supervision  of  the  finance  minister.  The  manufacture  is 
so  arranged  that  no  bank  note  can  be  turned  out  complete 
without  the  participation  of  the  bank  of  issue  and  the 
Government  in  the  operation.  The  notes  that  are  not 
placed  at  the  disposal  of  the  banks  are  kept  in  a  special 
treasury,  and  every  withdrawal  of  notes  from  this  treasury 
for  the  sake  of  putting  them  in  circulation,  as  well  as 
every  deposit  of  notes  not  required  for  circulation,  must 
be  effected  under  the  supervision  of  the  state  inspectors. 


39781°— II- 


■16 


239 


National    Monetary     Commission 

THE  LEGAL-TENDER  QUALITY  OF  THE  BANK  NOTES  AND 
THEIR  MUTUAL  REDEMPTION  AMONG  THE  BANKS  OF 
ISSUE. — DURATION   OF   THE   PRIVILEGE   OF   ISSUE. 

Bank  notes  are  a  legal  tender,  that  is  to  say,  they  are  a 
legal  tender  in  those  provinces  in  which  the  bank  has 
either  a  branch  {sede),  a  subbranch  (succursale) ,  or  an 
agency  (agenzia),  or  else  a  representative  charged  with 
the  redemption  of  the  notes. 

At  the  present  time  the  notes  of  all  three  banks  of  issue 
are  a  legal  tender  throughout  the  whole  kingdom. 

By  means  of  a  voluntary  agreement,  which  has  to  be 
sanctioned  by  the  Government,  each  of  these  institutions 
may  bind  itself  to  put  again  in  circulation  the  notes  of 
another  institution  in  making  its  payments. 

Inasmuch,  however,  as,  in  accordance  with  the  law  and 
by  reason  of  the  legal-tender  quality,  each  institution  is 
obliged  to  accept  the  notes  of  either  of  the  other  institu- 
tions, and  as,  in  case  one  institution  makes  use  in  its  pay- 
ments of  the  notes  of  another,  a  certain  amount  of  such 
notes  may  remain  in  its  treasury,  it  has  been  found  neces- 
sary to  regulate  the  mutual  redemption  of  notes  (the 
so-called  "  riscontrata  ")  between  the  banks  of  issue.  This 
duty  was  legally  reserved  for  the  Government,  which  has 
issued  the  following  regulations : 

On  the  loth,  20th,  and  last  day  of  each  month  one 
bank  informs  the  other  of  the  amount  of  the  notes  and 
other  sight  paper  (as,  for  example,  drafts)  of  that  other 
institution  it  has  in  its  possession.  After  the  lapse  of  five 
days  from  the  date  of  this  communication  the  latter  (the 
debtor  bank)  has  the  right  to  take  back  its  own  notes, 


240 


The      Italian      Banks      of     Issue 

drafts,  etc.,  in  exchange  for  the  notes,  drafts,  etc.,  of  the 
former  (the  creditor  bank)  and  other  instruments  that 
may  legally  serve  for  redemption,  as,  for  example,  national 
paper  currency  or  coin.  If  it  is  not  in  a  position  to  get 
back  all  its  notes  and  other  sight  instruments  in  this  man- 
ner, part  remains  in  the  hands  of  the  creditor  bank,  which 
charges  the  amount  to  the  debtor  bank  in  a  special  account 
current,  and  may  demand  interest  at  a  rate  not  exceeding 
three-fifths  of  the  official  rate  of  discount.  The  liquida- 
tion of  the  account  is  effected  at  the  end  of  June  and  at  the 
end  of  December  of  each  year. 

So  long  as  the  bank  notes  continue  to  be  legal  tender 
the  debtor  bank  can  not  be  compelled  in  the  exchange  of 
the  notes  and  the  liquidation  of  the  account  current  to 
hand  in,  in  addition  to  the  notes  of  the  creditor  bank,  an 
amount  of  other  instruments,  that  may  legally  serve  for 
redemption,  in  excess  of  one-twentieth  of  its  legally  per- 
mitted circulation.  The  debtor  bank  is  allowed  to  dis- 
charge the  remainder  of  its  obligations  with  bills  of  ex- 
change having  no  more  than  fifteen  days  to  run  and  with 
government  bonds. 

But  inasmuch  as  all  payments  into  and  from  the 
national  treasury  throughout  the  Kingdom  are  made 
through  the  Bank  of  Italy,  and  as  this  institution  therefore 
accumulates  a  large  volume  ot  notes  of  the  other  two 
banks  that  have  been  used  in  the  payment  of  taxes,  a  pro- 
vision has  been  enacted  in  favor  of  these  institutions,  lim- 
iting the  amount  which  they  may  be  called  upon  to  take 
back  to  the  volume  of  the  notes  of  the  Bank  of  Italy  which 
they  happen  to  have  in  their  possession. 


241 


National    Monetary     Commission 

The  duration  of  the  legal-tender  quality  of  the  bank 
notes  is  to  terminate  at  the  close  of  1910  but  a  further 
prolongation  is  anticipated. 

Those  of  the  institutions  which  at  the  expiration  of  the 
twenty-year  privilege  of  the  issue  of  bank  notes  (August 
10,  1 9 13)  will  have  fully  discharged  their  legal  obligations 
will  have  the  privilege  extended  to  the  close  of  1923.  Two 
years  before  the  expiration  of  the  present  term  the  con- 
dition of  the  banks  is  to  be  investigated  by  a  commission, 
which  shall  ascertain  whether  it  is  such  as  to  satisfy  in 
every  way  the  legal  requirements  with  respect  to  the  pro- 
longation of  the  privilege.  This  commission  shall  be  com- 
posed of  two  members  chosen  by  the  Senate  and  two  by 
the  Chamber  of  Deputies  and  of  three  members  appointed 
by  decree  of  the  Government  with  the  approval  of  the 
cabinet. 

X. — Discounts,    Loans,    Deposits. — Drafts,   Checks, 
ETC. — The  Rate  of  Discount. 

In  addition  to  the  issuing  of  notes,  the  banks  of  issue 
are  allowed  to  engage  in  the  following  kinds  of  business: 

(a)  The  discounting  of  bills  and  checks  having  no 
more  than  four  months  to  run  and  bearing  at  least  two 
signatures,  treasury  bills,  warrants  of  the  public  ware- 
houses, and  coupons  of  the  securities  on  which  loans  may 
be  made. 

(6)  The  making  of  advances  for  a  term  not  exceed- 
ing four  or  six  months  (according  to  the  nature  of  the 
securities  furnished  as  collateral)   on  government  bonds, 


>42 


The      Italian      Banks      of     Issue 

treasury  bills,  °  and  securities  guaranteed  by  the  State, 
on  debentures  of  realty  credit  banks,  securities  issued 
or  guaranteed  by  foreign  governments  and  payable  in 
gold,  on  gold  and  silver  coin,  on  silk,  on  orders  for 
merchandise  (obligations  to  deliver  a  certain  quantity 
of  a  particular  kind  of  goods  at  a  specified  date),  on 
warrants  of  the  public  warehouses,  etc.  The  loans  on 
securities  may,  according  to  the  nature  of  the  collateral, 
represent  either  the  full  nominal  value  or  a  fraction 
thereof — nine-tenths,  four-fifths,  three-fourths,  two-thirds, 
or  one-half. 

(c)  The  purchase  and  sale  of  foreign  bills  and  drafts 
payable  in  gold  with  at  least  two  good  signatures  and 
having  three  months  to  run  at  the  utmost,  as  well  as 
the  issue  of  drafts  on  foreign  countries.  But  as  such 
business  serves  mainly  for  the  accumulation  of  coin  for 
the  reserve  and  for  effecting  the  monetary  transactions 
of  the  Government,  the  banks  are  permitted  to  engage 
in  it  only  to  the  extent  that  it  is  necessary  for  such  pur- 
poses. In  any  case  the  aggregate  amount  involved  in  it, 
as  well  as  in  foreign  accounts  current,  is  not,  as  a  regular 
thing,  to  exceed  the  twentieth  part  of  the  maximum  per- 
missible note  circulation.  A  temporary  excess  may  be 
authorized  or  a  contraction  decreed  by  the  finance  min- 
ister if  the  note  circulation  with  40  per  cent  reserve 
exceeds  the  normal  maximum  circulation  or  if  the  state 
of  the  foreign  exchanges  seems  to  call  for  it. 

All  other  property,  immovable  as  well  as  movable,  es- 
pecially such  as  the  banks  may  acquire  in  the  payment 

a  If  these  have  a  very  long  time  to  run,  the  term  of  the  loan  may  be 
prolonged  to  as  much  as  two  years. 


fl43 


National    Monetary     Commission 

of  debts,  is  to  be  sold  within  two  years.  The  banks  are, 
however,  permitted  to  invest  such  of  their  available  re- 
sources as  are  not  to  go  to  the  surplus  in  government 
bonds  or  in  securities  guaranteed  by  the  State.  The 
amount  of  such  investments  shall  not  exceed  75,000,000 
for  the  Bank  of  Italy,  30,000,000  for  the  Bank  of  Naples, 
and  8,000,000  for  the  Bank  of  Sicily.  Some  special  laws, 
however,  have  excluded  from  this  restriction  certain  gov- 
ernment securities  and  the  securities  of  several  mortgage 
and  agricultural  credit  institutions. 

The  banks  are  not  permitted  to  have  any  part  of  their 
assets  in  accounts  current  without  security  or  to  make 
loans  on  real  estate.  As  was  stated  above,  the  affairs  of 
the  realty  credit  institutions  connected  with  the  banks 
of  issue  are  being  wound  up. 

The  banks  are  permitted  to  take  current-account  de- 
posits and  pay  interest  on  them.  When  the  amount  of 
these  deposits  exceeds  200,000,000  lire  in  the  case  of  the 
Bank  of  Italy,  80,000,000  in  that  of  the  Bank  of  Naples, 
and  25,000,000  in  that  of  the  Bank  of  Sicily,  the  bank-note 
circulation  shall  be  reduced,  the  amount  of  the  reduction 
being  one-third  of  the  amount  by  which  the  deposits  ex- 
ceed these  limits.  The  rate  of  interest  shall  not  exceed 
one-third  of  the  rate  of  discount.  The  finance  minister 
may,  however,  authorize  the  banks  to  allow  a  higher  rate, 
which  shall  not  exceed  three-fourths  of  the  rate  of  interest 
allowed  on  deposits  in  the  postal  savings  banks. 

The  banks  also  receive  simple  non-interest-bearing  de- 
posits, and  may  draw  banking  assignments  on  foreign 
banking  institutions  for  their  own  account  or  for  account 
of  a  third  part}^  issue,  etc. 


244 


The     Italian      Banks      of     Issue 

An  interesting  feature  of  the  business  of  these  institu- 
tions is  the  issue  of  certificates  of  deposit  having  the  char- 
acter of  negotiable  paper  (vaglia  canibiari),  which  are 
extensively  used,  lending  themselves  especially  to  the 
transfer  of  sums  from  one  place  to  another.  They  are 
made  out  for  the  depositor  for  any  amount  he  may  desire, 
and  are  made  payable  to  him  or  to  a  third  party  desig- 
nated by  him.  They  may  be  transferred  from  one  holder 
to  another  by  a  simple  signature  or  by  indorsement. 
Such  drafts  are  payable  at  every  branch  or  subbranch 
of  the  bank  or  at  the  office  of  any  correspondent  and 
cease  to  be  valid  only  at  the  expiration  of  five  years. 

Mention  should  be  made  of  the  following  instruments 
issued  by  the  Bank  of  Naples  and  the  Bank  of  Sicily  as 
certificates  of  interest-bearing  and  non-interest-bearing 
deposits : 

(a)  Certificate  of  credit.  This  is  handed  out  to  a  de- 
positor on  his  being  credited  with  a  deposit  of  at  least  50 
lire  and  is  transferable  b}^  signature  or  indorsement. 

(b)  Small  cash  order.  This  is  a  certificate  of  credit 
issued  for  a  sum  of  less  than  50  lire.  It  is  made  out  by 
the  depositor  himself  and  certified  by  the  bank  and  is 
transferable  in  the  same  way  as  the  preceding. 

(c)  Cash  order  noted  in  jede.  If  the  depositor  wishes  to 
make  use  of  the  sum  certified  in  the  certificate  of  credit 
for  making  several  successive  payments,  the  document  is 
converted  into  one  that  is  not  transferable,  a  madre-fede, 
which  assumes  the  character  of  a  pass  book.  The  instru- 
ment which  the  depositor  makes  out  in  order  to  dispose  of 
part  of  his  credit  balance  is  presented  with  the  madre-fede 


245 


National    Monetary     Commission 

and  certified  by  the  bank  and  is  known  as  a  cash  order 
noted  in  fede  because  of  the  entry  that  has  to  be  made 
on  the  madre-fede.  The  cash  order  (polizza)  is  transfer- 
able in   the  same  way  as  the  certificate  of  credit. 

The  Bank  of  Naples  has  authorized  its  correspondents 
to  draw  banking  assignments  upon  it  up  to  an  aggregate 
sum  previously  agreed  upon,  for  which  security  is  fur- 
nished. They  are  payable  at  every  branch  and  sub- 
branch  of  the  bank,  but  must  be  presented  for  payment 
within  fifteen  days.  This  shorter  term  distinguishes  this 
instrument  from  the  above-mentioned  negotiable  paper. 
The  Bank  of  Italy  has  also  authorized  its  correspond- 
ents under  like  conditions  to  make  out  such  banking 
assignments,  but  they  are  to  be  drawn  only  upon  a  speci- 
fied branch  or  subbranch  and  they  must  be  presented 
within  a  specified  short  time.  This  instrument  is  there- 
fore distinguished  from  the  above-mentioned  draft  in  a 
double  manner — by  being  made  payable  at  a  specified 
place  and  within  a  short  time. 

All  demand  liabilities  are  to  be  covered  by  a  cash 
reserve  amounting  to  40  per  cent  of  their  aggregate 
amount.  The  composition  of  this  reserve  shall  be  the 
same  as  that  of  the  reserve  against  bank-note  circulation. 
In  order  to  prevent  the  abuses  of  former  times  the  Gov- 
ernment was  empowered  to  make  agreements  with  the 
three  institutions  and  to  prescribe  uniform  norms  for  the 
compilation  of  the  lists  of  individuals  and  firms  to  whom 
credit  is  granted  (the  maximum  amount  being  entered), 
for  the  mutual  exchange  of  these  lists  or  the  partial  com- 
munication of  their  contents,  for  the  choice  of  corre- 
spondents, etc. 


246 


The      Italian      Banks      of     Issue 

The  institutions  receive  for  safekeeping  (or  in  trust) 
securities,  objects  made  of  the  precious  metals,  and  money 
for  account  of  the  Government,  individuals,  and  stock 
companies  (first  installment  of  the  capital  paid  in  at  the 
organization) . 

The  institutions  may,  conformably  with  the  norms 
prescribed  by  royal  decree,  establish  and  operate  clearing 
houses  (stanze  di  compensazione) .  This  has  been  done 
in  some  of  the  large  cities  (Florence,  Genoa,  Milan,  Na- 
ples, Rome,  Turin). 

So  long  as  the  bank  notes  are  legal  tender,  the  normal 
rate  of  discount,  as  well  as  the  rate  of  interest  on  loans, 
must  be  the  same  for  all  the  banks  of  issue,  and  they 
can  not  be  altered  without  the  sanction  of  the  Govern- 
ment. The  Government  is  empowered  to  institute  a 
change  simultaneously  for  all  three  institutions.  These 
are  permitted,  however,  in  certain  cases  to  lower  the 
rate  of  discount,  although  by  not  more  than  i  per  cent. 
They  may  do  so  in  the  case  of  loans  to  people's  banks, 
agricultural  loan  institutions,  banks  established  for  the 
promotion  of  the  mining  industry,  and  discount  banks 
that  fulfill  certain  legal  requirements,  such  as  the  promo- 
tion of  the  retail  trade  and  the  discounting  of  the  war- 
rants of  the  public  warehouses.  They  are  empowered 
to  do  the  same  in  the  discounting  of  warrants  issued  by 
the  public  warehouses  against  deposits  of  silk,  sulphur, 
and  lemons  and  oranges  and  preparations  made  from 
them.  This  discount  is  termed  *'  sconto  di  favore  "  or  pref- 
erential rate.  The  aggregate  sum  applicable  to  such 
transactions  is  limited  to  100,000,000  lire  for  the  Bank  of 
Italy,  30,000,000  for  the  Bank  of  Naples,  and  9,000,000 
for  the  Bank  of  Sicily. 


247 


National    Monetary     Commission 

In  addition  to  this,  when  the  aggregate  circulation  of 
notes  is  below  the  normal  maximum,  the  banks  of  issue 
are  allowed  to  discount  below  the  normal  rate  the  prom- 
issory notes  of  mercantile  firms  and  banking  houses  of 
the  first  rank  which  have  not  over  three  months  to  run. 
This  is  termed  sconto  a  saggio  ridotto  or  reduced  rate  dis- 
count. It  is  not  permitted  to  fall  below  3  per  cent. 
Changes  in  the  rate  are  to  be  made  according  to  the  state 
of  the  market  on  the  appHcation  of  the  banks  by  decree 
of  the  minister  of  finance.  This  reduced  rate  can  not  be 
legally  obtained  in  the  case  of  the  renewal  of  promissory 
notes  in  whole  or  in  part,  or  in  the  case  of  promissory 
notes  put  forth  for  the  Hquidation  of  debts  created  by 
previous  notes.  The  decisions  of  the  discount  commission 
in  regard  to  these  promissory  notes  must  be  by  an  abso- 
lute majority  of  the  members,  and  a  special  bookkeeping 
has  to  be  provided  for  this  business.  The  notes  thus 
discounted  must  be  kept  in  a  special  portfolio,  so  that 
they  shall  be  absolutely  apart  not  only  from  the  notes 
discounted  at  the  normal  rate,  but  also  from  the  "pref- 
erence" notes  of  the  people's  banks,  agricultural  loan 
institutions, etc.,  in  order  that  they  may  be  under  the 
special  supervision  of  the  Government. 

There  are  thus  three  rates  of  discount — the  normal  or 
official  rate,  the  preferential  rate  {sconto  di  javore)  and  the 
reduced  rate  {sconto  a  saggio  ridotto) . 

XL— The    Surplus    (Fondo    di    Riskrva,    Massa    di 

RiSPETTO) . 
In  the  case  of  the  Bank  of  Italy  the  surplus  is  to  be 
equal  to  one-fifth  of  the  nominal  capital.     It  is  consti- 
tuted by  setting  aside  one-twentieth  of  the  yearly  net 

248 


The      Italian      Banks      of     Issue 

earnings.  When  the  yearly  net  earnings  exceed  5  per 
cent  of  the  paid-in  capital,  20  per  cent  of  such  excess  is 
taken  and  assigned  to  the  surplus. 

When  the  amount  of  the  surplus  shall  in  this  manner 
have  attained  to  the  legal  requirement,  the  general  assem- 
bly of  the  shareholders  may  resolve  that  an  additional 
part  of  the  net  earnings  shall  be  set  aside  for  the  accumu- 
lation of  special  surplus  funds  for  particular  purposes. 
The  funds  thus  constituted  (a  part  of  the  surplus  is  still  set 
aside  as  security  for  the  operations  of  the  mortgage  depart- 
ment, now  in  process  of  liquidation)  are  invested  in  gov- 
ernment obligations  or  in  securities  guaranteed  by  the 
Government. 

An  ' '  extraordinary  surplus  ' '  {riserva  straor dinar ia)  was 
constituted  out  of  the  profits  realized  in  the  liquidation  of 
the  '*  immobilized  assets  "  and  the  sums  that  had  been  set 
aside  for  the  purpose  of  covering  any  incidental  losses  that 
might  be  incurred  in  such  liquidation.  A  part  of  the 
interest  on  this  surplus  for  the  ten  years  19 14-1923  is  to 
be  turned  over  to  the  shareholders  as  an  indemnity  for 
the  lowering  of  the  paid-in  capital  mentioned  above. 

The  Bank  of  Naples  and  the  Bank  of  Sicily  have  no 
shareholders,  and  the  yearly  net  earnings  are,  therefore, 
devoted  to  some  extent  to  public  purposes  and  mainly  to 
the  creation  of  a  surplus,  which  has  already  attained  to  a 
very  respectable  sum.  In  the  case  of  these  two  institu- 
tions, inasmuch  as  they  have  no  shareholders  but  own 
their  capital  outright,  the  distinction  between  the  property 
which  constitutes  their  regular  capital  and  the  surplus  is 
of  minor  importance.  In  their  case  the  surplus  is  in 
reality  merely  a  distinct  part  of  their  property  in  their 
bookkeeping. 


249 


National    Monetary     Commission 

XII.— The  Banks  of  Issue  in  their  Relations  to 
THE  State. — Taxes. — The  Government's  Share  in 
THE  Profits. — Statements. 

The  banks  of  issue  are  obliged  to  advance  money  to 
the  Government  at  the  rate  of  interest  of  i}i  per  cent  net, 
government  bonds  and  treasury  bills  being  deposited 
with  them  as  security.  The  maximum  amount  of  these 
advances  is  fixed  at  115,000,000  lire  for  the  Bank  of  Italy 
and  10,000,000  lire  for  the  Bank  of  Sicily.  On  account  of 
its  former  unfavorable  condition,  the  Bank  of  Naples  was 
freed  from  this  obligation. 

The  Bank  of  Italy  is  furthermore  obliged,  on  the  demand 
of  the  minister  of  finance,  to  advance  to  the  National  De- 
posit and  lyoan  Institution  {Cassa  dei  Depositi  e  Prestiti) 
cash  sums  up  to  50,000,000  lire  at  a  rate  of  interest  not 
exceeding  3  per  cent,  government  bonds  or  other  obligations 
guaranteed  by  the  Government  being  given  as  security. 

The  receiving  and  disbursing  of  the  public  moneys 
throughout  the  whole  extent  of  the  Kingdom  has  been 
intrusted  to  the  Bank  of  Italy  since  February  i,  1895. 
The  bank  furnished  as  security  government  bonds  to  the 
value    of    90,000,000  lire. 

The  supervision  over  the  banks  of  issue  rests  with 
the  ministry  of  finance.  For  this  purpose  the  ministry 
maintains  a  central  bureau  under  an  inspector-general 
and  a  permanent  commission.  The  former  discharges 
the  actual  duties  of  supervision.  An  inspector  is  dele- 
gated by  the  Government  to  attend  the  meetings  of  the 
general  assembly  of  the  shareholders  and  the  superior 
council  of  the  Bank  of  Italy  and  of  the  general  and  ad- 


250 


The      Italian      Banks      of     Issue 

ministrative  councils  of  the  Bank  of  Naples  and  the  Bank 
of  Sicily,  and  is  empowered  to  interpose  his  veto  against 
any  resolution  considered  by  him  illegal,  a  report  being 
submitted  by  him  to  the  finance  minister,  with  whom  the 
ultimate  decision  rests.  It  is  his  business  to  report  directly 
concerning  all  resolutions,  even  those  against  which  he  has 
not  interposed  his  veto,  and  on  the  strength  of  his  report 
the  minister  of  finance  may  within  five  days  suspend 
and  finally  annul  all  illegal  resolutions  irrespective  of 
whether  the  inspector  has  interposed  his  veto  or  not. 
The  resolutions  adopted  at  the  meetings  of  the  mana- 
ging bodies  must  be  communicated  to  the  minister 
of  finance  by  the  director-general  within  two  days. 
The  finance  minister  orders  periodical  (triennial)  and  ex- 
traordinary examinations  of  the  cash  on  hand,  the  reserve, 
the  circulation,  and  the  stock  of  bills  and  promissory 
notes,  in  particular  the  foreign  bills  and  the  notes  that 
have  been  discounted  at  reduced  rate  {saggio  ridotto). 
The  central  bureau  exercises  a  general  supervision  over 
the  administration  and  over  the  nature  of  the  busi- 
ness transactions  with  respect  to  legal  requirements.  It 
supevrises  the  business  of  the  Bank  of  Italy  in  the 
receiving  and  disbursing  of  public  moneys.  The  per- 
manent commission  draws  up  legal  opinions  for  the 
benefit  of  the  Government  concerning  important  ques- 
tions relating  to  the  bank  laws  and  their  execution  and 
the  administration  and  inspection  of  the  banks.  This 
body  consists  of  four  commissioners  appointed  by  the  Sen- 
ate from  its  midst,  four  commissioners  appointed  by  the 
Chamber  of  Deputies  from  its  midst,  and  five  delegates 


251 


National    Monetary     Commission 

of  the  Government.  The  delegates  of  the  Government 
are:  The  president  or  a  member  of  the  council  of  state, 
the  president  or  a  member  of  the  chamber  of  audit,  the 
director-general  of  the  treasury,  the  inspector-general  of 
the  banks  of  issue  in  the  ministry  of  finance,  and  the 
director-general  of  the  credit  department  in  the  ministry 
of  commerce. 

The  banks  are  subject  to  the  following  taxes  and  dues: 

(a)  The  general  personal-property  tax. 

(6)  The  dues  in  connection  with  demand  liabilities  and 
loan  transactions. 

(c)  An  ordinary  tax  on  circulation  levied  upon  the 
amount  of  notes  outstanding  (taking  the  average  for  the 
year)  below  the  normal  maximum.  Of  this  amount,  how- 
ever, that  portion  which  corresponds  to  the  sum  of  the 
reserve  and  the  advances  to  the  Government  is  not  sub- 
ject to  the  tax.  In  other  words,  so  much  is  to  be  de- 
ducted from  the  total  circulation.  With  the  discharge  of 
their  obligations  in  the  matter  of  the  progressive  Hquida- 
tion  of  their  real  estate  assets  and  such  investments  as 
were  no  longer  permissible,  the  banks  had  the  benefit 
of  a  gradual  reduction  of  this  tax  on  circulation,  which 
at  first  was  i  per  cent  of  the  average  amount  of  notes 
outstanding  (with  the  above-mentioned  deduction)  and 
which  came  down  in  1909  to  the  minimum  of  one- 
tenth  of  I  per  cent,  the  immobilized  assets  having 
ceased  to  exist. 

{d)  A  special  and  an  extraordinary  tax  on  the  amount 
of  notes  in  circulation  in  excess  of  the  normal  maximum 
(or  the  amount  not  covered  by  the  prescribed  reserve  of 


?52 


The      Italian      Banks      of     Issue 

40  per  cent) ,  as  described  in  detail  in  a  preceding  section. 
Here  likewise  the  amount  corresponding  to  the  reserve  is 
exempt  from  the  tax. 

{e)  A  sort  of  penal  tax  on  transactions  not  sanctioned 
by  the  law,  amounting  to  three  times  the  rate  of  discount 
or  of  interest  involved  in  the  business  in  question. 

if)  Inspection  fees,  designed  to  reimburse  the  Govern- 
ment for  the  expense  of  supervision.  The  annual  sums 
paid  by  the  banks  are  at  present  as  follows:  Bank  of 
Italy,  70,000  lire;  Bank  of  Naples,  21,000  lire;  Bank  of 
Sicily,  5,000  lire. 

{g)  The  Bank  of  Italy  pays  the  regular  transfer  tax  on 
its  shares  when  they  change  hands,  and  the  Bank  of 
Naples  and  the  Bank  of  Sicily,  as  permanent  institutions 
owning  their  own  capital,  have  to  pay  mortmain  dues, 
or  rather,  taxes. 

The  State  receives  furthermore  (since  January  i,  1909), 
as  its  share  of  the  profits  of  the  banks  of  issue,  one-third  of 
the  yearly  net  earnings,  if  these  are  in  excess  of  5  per  cent 
and  below  6  per  cent,  and  if  the  net  earnings  exceed  6  per 
cent,  one-half  of  such  excess  in  addition.  It  is  to  be  noted 
here  that  the  determination  of  the  percentage  of  the  net 
earnings  of  the  Bank  of  Italy  relatively  to  the  capital  is 
to  be  made  with  reference  only  to  the  paid-in  capital  and 
with  deduction  of  a  definite  portion  assigned  to  the  pen- 
sion fund  in  behalf  of  the  employees.  In  the  case  of  the 
Bank  of  Naples  and  the  Bank  of  Sicily  the  percentage  of 
the  net  earnings  is  reckoned  with  reference  to  the  aggre- 
gate amount  of  their  free  capital  and  the  surplus,  as  the 
latter  is  merely  a  separately  reckoned  part  of  the  former. 


253 


National    Monetary     Commission 

On  the  tenth,  twentieth,  and  last  day  of  each  month 
the  banks  have  to  send  to  the  ministry  of  finance  a 
detailed  statement  of  their  condition.  The  form  of 
the  statement  is  prescribed  by  royal  decree.  The  state- 
ments are  all  pubUshed  succinctly  in  the  official  organ  of 
the  Government  and  those  that  appear  at  the  end  of  the 
month  are  given  in  full  to  the  public  by  the  ministry  of 
finance  in  a  special  bulletin.  This  bulletin  contains  also 
the  monthly  reports  concerning  the  amount  of  bank  notes 
issued  and  redeemed,  the  volume  of  the  discount  and  loan 
transactions  at  each  of  the  branches,  the  exchange  of  notes 
between  the  banks,  the  treasury  notes,  etc. 

XI 1 1. — Statistics. 

Condition  of  the  banks  of  issue  on  December  ji,  iSg",  and  September  jo,  igog 

[In  millions  of  lire.] 


Date  of 

Bank. 

^  >> 

II 

'I 

3 
CO 

Deposits 
and  other  lia- 
bilities 

Reserve  against  circula- 
tion and  demand  lia- 
bilities.o 

1 
1 

<A 
.0 

C 

3 

5 

1 

state- 
ment. 

3 

.2 

3 
S 

IS 

r 

3 

i 
1 

3 

1897. 
Dec.  31- - 

1909. 
Sept.30-- 

Bank  of  Italy 

Bank  of  Naples 

Bank  of  Sicily 

Bank  of  Italy 

Bank  of  Naples 

Bank  of  Sicily 

180.  0 
65. 0 
12. 0 

180.0 

so.  0 
12.  0 

43.6 
3.9 
50 

48.0 
II. 5 

8.0 

789. 2 

238.8 

58.2 

1.467.2 
386.0 

87.1 

88.  I 
41.0 
22.  3 

134.2 
5S-S 
29.  8 

130.  0 

31.  7 
13.  5 

79.4 

32.  7 
12.9 

445-6 

1x6.x 

38.2 

1. 142.9 

28X.5 

69.  I 

195-  5 
78.  4 
33.  4 

503-  7 

146.4 

63.3 

X20.  2 
75-  2 

13-3 

173.  I 

83.5 

9    9 

o  Including  foreign  bills  and  securities  and  credit  balances  in  foreign  institutions. 

^  Exclusive  of  foreign  bills,  which  are  reckoned  in  the  reserve. 

«  Exclusive  of  foreign  securities,  which  are  reckoned  in  the  reserve. 


254 


The      Italian      Banks      of      I  s  s  u 

Cash  reserve  of  the  banks  of  issue. 
[In  millions  of  lire.] 


Date  of  state- 
ment. 


Dec.  31,  1897. 


Sept.  ,30,  1909 


Bank. 


Bank  of  Italy  _- 
Bank  of  Naples 
Bank  of  Sicily.. 

Bank  of  Italy.. 
Bank  of  Naples 
Bank  of  Sicily.. 


Gold. 

Silver 

.900  fine. 

300.  2 

40.  4 

61.6 

10. 5 

35-  2 

1-3 

947-  7 

107.  8 

195-  9 

17-  4 

56.  0 

4.  2 

Foreign 
bills  and 
securi- 
ties and 
credit 
balances 
in  foreign 
institu- 
tions. 


60. 


1-3 

87.4 

45-  2 

8.9 


Rate  of  discount  of  the  banks  of  issue. 


Bank. 

Normal 
rate. 

Special  rate. 

Date  of 
statement. 

Sconto  di  favore. 

Sconto  a  saggio 
ridotto. 

Maxi- 
mum. 

Mini- 
mum. 

Maxi- 
mum. 

Mini- 
mum. 

Dec.  31,  1897.  . 
Mar.  31,  1908.. 

Bank  of  Italy 

Bank  of  Naples 

Bank  of  Sicily 

Bank  of  Italy 

Bank  of  Naples 

Bank  of  Sicily 

5 
S 

s 

S 
5 

5 

4K 
4K 
AV2 

4 
4 
4 

4 
4 
4 

4 
4 
4 

4M 
43^ 

3^ 
3M 
3^ 

4 

4 
4 

3M 
3K 

3'A 

3978] 


17 


255 


Text  of   the  Law  Relating  to  the  Banks  of 

Issue  and  the  Circulation  of 

Bank  Notes  in  Italy 


257 


CONTENTS. 

Page. 

Royal  decree 261 

Title  I. — Issue  of  notes  and  other  obligations 263 

Title  II.— Circulation 265 

Section  I. — Limit  of  circulation 265 

II. — Exchange  of  notes 266 

III. — Reserve 267 

IV. — Circulation  tax  and  participation  of  the  State  in  the 

profits  of  banks  of  issue 273 

Title  III. — Advances  to  the  treasury 277 

Title  IV. — Operations 277 

Section  I. — Discounts 277 

II. — Advances 280 

III. — Purchase  and  sale  of  bills  of  exchange,  drafts,  and 

assignments  on  foreign  countries 283 

IV. — Direct  investments 284 

V. — Deposits  in  current  accounts 287 

VI. — Issue  of  customs  certificates,  and  provincial  revenue 

service 287 

VII. — Provincial  service  of  the  Royal  Treasury 289 

VIII. — Special  operations  of  the  Bank  of  Naples:  Savings 
branch,  pawn  office,  custody  of  remittances  and 

savings  of  Italian  emigrants  abroad 290 

IX. — Agrarian  credit  and  savings  branch  of  the  Bank  of 

Sicily 293 

X. — Other  regulations 295 

Title  V. — Mutual  redemption  of  notes  among  the  several  banks 298 

Title  VI. — Liquidation  of  the  Banca  Romana 299 


259 


National     Monetary     Commission 

Page. 

Title  VII.— Liquidation  of  realty  credits  of  banks  of  issue 301 

Section  I. — Special  regulations  for  the  credit  foncier  or  realty 
credits  of  the  former  Banca  Nazionale  nel  Regno 

and  the  Bank  of  Sicily 301 

II. — Special  regulations  for  the  realty  credits  of  the  Bank 

of  Naples 305 

III. — Regulations  common  to  the  realty  credit  adminis- 
trations of  the  three  banks 311 

Title  VIII. — Supervision  of  circulation  and  banks  of  issue 318 

Section  I. — General  regulations 318 

II. — Permanent  commission 3^8 

III. — Permanent  supervision 321 

IV. — Periodical  and  extraordinary  inspections 325 

Title  IX.— General  regulations 329 

Title  X.— Penalties 33i 

Title  XI.— Temporary  regulations 334 

APPENDICES. 

I.— Royal  decree,  October  10,  1895,  No.  627,  fixing  the  require- 
ments for  the  admission  of  bills  of  exchange  on  foreign 
countries  and  credits  in  current  accounts  abroad  as  part  of 

the  reserve  of  banks  of  issue 33^ 

II. — Royal  decree,  October  25,  1895,  No.  639,  authorizing  the  banks 
of  issue  to  discount  on  bills  of  exchange  bearing  first-class 

signatures  at  less  than  the  normal  rate 340 

III.— Royal  decree,  February  9,  1908,  No.  62,  regulating  the  dis- 
count by  banks  of  issue  of  bills  issued  by  the  obligatory 
"Association"  for  the  Sicilian  sulphur  industry  to  the  Au- 
tonomous Bank  of  Mining  Credit  for  Sicily 343 


260 


TEXT  OF  THE  LAW  RELATING  TO  THE  BANKS 
OF  ISSUE  AND  TO  THE  CIRCULATION  OF 
BANK  NOTES  IN  ITALY. 


ROYAL  DECREE. 

Victor  Emmanuel  III,  by  the  Grace  of  God  and  the 
Wiiviv  OF  THE  Nation,  King  of  Italy. 

By  virtue  of  the  power  conferred  upon  the  Government 
by  article  5  of  the  law  of  December  24,  1908,  No.  723,  to 
collect  and  publish  by  our  decree  in  a  new  text  the  whole 
body  of  laws  governing  banks  of  issue  and  the  circulation 
of  bank  notes;  and 

In  pursuance  of  the  Text  of  the  l^aw  relative  to  the 
banks  of  issue  and  to  the  circulation  of  bank  notes,  ap- 
proved by  Royal  Decree,  October  9,  1900,  No.  373;  and 

In  pursuance  of  the  laws  of  February  i,  1901,  No.  24; 
July  7,  1 901,  No.  334;  July  7,  1902,  No.  290;  December 
27,  1903,  No.  499;  June  25,  1905,  No.  261;  July  7,  1905, 
Nos.  349  and  350;  March  29,  1906,  No.  100;  June  25,  1906, 
No.  255;  July  15,  1906,  Nos.  333,  383,  and  441;  December 
31,  1907,  No.  804;  July  2,  1908,  No.  320;  July  5,  1908, 
Nos.  351,  388,  and  404;  July  12,  1908,  No.  444;  December 
24,  1908,  No.  423;  July  15,  1909,  No.  492;  and 

With  the  consent  of  the  banks  of  issue ;  and 


261 


National     Monetary     Commission 

In  pursuance  of  the  results  of  the  meetings  held  Feb- 
ruary II,  12,  13,  and  16,  1909,  of  the  subcommittee  of  the 
permanent  committee  for  the  supervision  of  the  circula- 
tion and  the  banks  of  issue ;  and 

In  pursuance  of  the  report  of  the  aforesaid  permanent 
committee;  and 

With  the  consent  of  the  council  of  state; 

With  the  consent  of  the  council  of  ministers;  and  upon 
the  proposal  of  our  secretary  of  state  for  the  treasury; 

We  have  decreed  and  do  hereby  decree : 

That  the  attached  Text  of  the  whole  body  of  law  re- 
garding banks  of  issue  and  the  circulation  of  bank  notes 
be,  and  is  hereby,  approved. 

We  hereby  command  that  the  present  decree,  sealed 
with  the  State  seal,  be  placed  in  the  official  compendium 
of  the  laws  and  decrees  of  the  Kingdom  of  Italy,  binding 
upon  all  the  persons  whose  duty  it  is  to  observe  it  to  enforce 
the  observation  thereof. 

Given  at  Rome  on  this  28th  day  of  April,  19 10. 

Victor  EmmanueIv. 
luzzatti. 
Tedksco. 

Witness  the  keeper  of  the  seals: 

Fani. 

(This  present  decree  was  published  in  the  Official 
Gazette  of  the  Kingdom,  May  27,  1910,  No.  123.) 


262 


Law    Relating    to    Banks    of   Issue 

TEXT  OF  THE  LAW. 
TiTivE   I. — Issue   of   Notes   and   other   Obugations. 

ARTICLE  I. 

[Articles  1,2,  and  24,  law  of  August  10,  1893,  No,  449,  Article  7  of  agree- 
ment with  the  Bank  of  Italy,  October  30,  1894,  approved  by  royal  decree 
December  10,  1894,  No.  533  (appendix  to  the  law  of  August  8,  1895, 
No.  486).  Articles  i  and  21  of  agreement  with  the  Bank  of  Italy,  No- 
vember 28,  1896,  approved  by  royal  decree  December  6,  1896,  No.  517 
(Appendix  A  to  law  of  January  17,  1897,  No.  9).  Article  17,  Appendix 
B,  and  Article  15,  Appendix  C,  to  previous-named  law.  Article  14, 
law  of  March  3,  1898,  No.  47.] 

The  right  to  issue  bank  notes  or  other  equivalent 
obligations  payable  to  bearer  at  sight  is  granted  for  a 
period  of  twenty  years  from  August  10,  1893,  to  the 
following  institutions : 

The  Bank  of  Italy,  with  a  nominal  capital  of  240,- 
000,000  lire,  divided  into  300,000  personal  shares  of  800 
lire  each; 

The  Bank  of  Naples; 

The  Bank  of  Sicily. 

Two  years  before  the  expiration  of  the  aforemen- 
tioned term  a  commission  composed  of  seven  members, 
of  whom  two  are  to  be  elected  by  the  Senate,  two  by 
the  Chamber  of  Deputies,  and  three  appointed  by  royal 
decree  with  the  consent  of  the  Council  of  Ministers,  shall 
proceed  to  an  examination  of  the  condition  of  the  three 
banks  of  issue  with  a  view  to  certifying  their  exact 
fulfilment  of  the  requirements  imposed  by  law. 

The  said  commission  shall  complete  its  labors  and 
make  a  report  within  six  months. 

If,  upon  such  examination,  it  shall  appear  that  said 
requirements  have  been  fulfilled,  the  privilege  above 
named  shall  be  extended  until  December  31,   1923. 

263 


National    Monetary     Commission 

ARTICLE  2. 

[Article  14,  law  of  April  30,  1874,  No.  1920.  Article  19,  law  of  April  7, 
1881,  No.  133.  Article  i,  law  of  August  10,  1893,  No.  449.  Article 
2,  Appendix  T  to  law  of  August  8,  1895,  No.  486.] 

The  banks  authorized  to  issue  notes  are  empowered 
to  estabhsh  branches  {sedi),  subbranches  (succursali) ,  or 
agencies  iagenzie)  in  any  Province  in  the  Kingdom  under 
the  conditions  of  their  respective  charters.  They  must, 
however,    maintain    representative    headquarters    in    the 

capital. 

ARTICLE  3- 

[Article  7,  law  of  August  10,   1893,  No.  449.     Article  10,  Appendix  I  to 
law  of  July  22,  1894,  No.  339.] 

The  Bank  of  Italy,  the  Bank  of  Naples,  and  the  Bank 
of  Sicily  are  authorized  to  issue  notes  of  the  denomina- 
tions of  50  lire,  100  lire,  and  1,000  lire. 

ARTICLE  4- 
[Article  9,  law  of  August  10,  1893,  No.  449.] 

In  the  manufacture  of  notes  of  the  three  institutions, 
the  State  and  each  one  of  them,  respectively,  participate, 
so  that  neither  the  State  nor  the  institution  alone  may 
manufacture  an  entire  note. 

The  rules  for  the  manufacture  of  notes,  for  their  re- 
placement when  they  shall  be  worn  out  or  damaged, 
and  for  their  cancellation  and  destruction,  are  deter- 
mined by  a  regulation  approved  by  royal  decree.  The 
same  decree  states  the  amount  of  notes  to  be  allowed 
to  each  institution  as  an  initial  working  fund,  and  estab- 
lishes rules  to  control  the  use  of  same." 

a  Royal  decree  of  Oct.  30,  1896,  No.  508,  modified  by  royal  decree  of 
Mar.  7,  1907,  No.  73. 

264 


Law    Relating    to    Banks    of   Issue 

The  forms,  denominations,  and  characteristics  of  notes 
to  be  manufactured  are  fixed  by  decree  of  the  minister 
of  the  treasury. 

The  expenses  of  manufacture  of  notes  shall  be  met  by 
the  institutions. 

The    manufacture  and    the    supplying    of    notes    shall 

involve  the  State  in  no  liability  either  to  the  public  or 

to  the  banks. 

ARTICLE  5. 

[Article  11,  paragraph  2,  law  of  August,  1893,  No.  449.] 

Promissory  notes,  bills  of  exchange,  banking  assign- 
ments, and  certificates  of  credit  payable  at  sight  in  all 
the  offices  of  each  institution  must  be  personal. 

Title  II. — Circulation. 

Section  I. — Limit  of  circulation. 

ARTICLE  6. 

[Law  of  December  31,  1907,  No.  804  (Appendix  A).] 

The  maximum  normal  limit  of  circulation  of  the  banks 
is  fixed  at  908,000,000  lire,  divided  as  follows: 

Lire. 

Bank  of  Italy 666,  000,  000 

Bank  of  Naples 200,  000,  000 

Bank  of  Sicily 48, 000,  000 

The  privilege  of  the  Bank  of  Sicily  to  extend  the 
normal  limit  of  its  circulation  up  to  a  further  10,000,000 
lire  is  confirmed,  for  the  exclusive  purpose  of  making 
advances  on  certificates  of  deposit  and  granting  prefer- 
ential rates  of  discount  on  warrants  in  its  dealings  with 
the  sulphur  industry,  under  article  22  of  the  law  of  July 
15,  1906,  No.  333,  and  the  law  of  June  6,  1907,  No.  286. 


265 


National    Monetary     Commission 

articlp:  7. 

[Article  2,  law  of  August  10,  1893,  No.  449.     Article  2,  law  of  February 
16,  1899,  No-  45-] 

The  circulation  of  each  institution  may  exceed  the 
limit  stated  in  article  6,  when  their  respective  notes  are 
entirely  covered  by  legal  metallic  coin  or  by  gold  bars  on 
hand,  excepting  the  provision  made  by  article  11  for 
fractional  silver  currency. 

Exception  is  also  made  in  the  case  of  the  circulation  of 
notes  corresponding  to  the  advances  made  by  the  banks 
to  the  State,  as  per  article  25. 

All  other  infractions  of  the  circulation  limit  assigned 
to  each  institution  by  the  said  article  6  will  be  subject  to 
the  provision  made  in  article  21. 

Section  II. — Exchange  of  notes. 

ARTICLE  8. 

[Article  3,  law  of  August  10,  1893,  No.  449.     Article  5,  Appendix  F,  and 
Article  6,  Appendix  I,  to  law  of  July  22,  1894,  No.  339.] 

Holders  of  notes  payable  at  sight  to  bearer  are  entitled 
to  require  from  the  institutions  issuing  same  the  redemp- 
tion of  said  notes  in  coin  having  legal  currency  in  the 
Kingdom:  In  Rome  and  in  the  cities  of  Bari,  Bologna, 
CagHari,  Catania,  Florence,  Genoa,  Leghorn,  Messina, 
Milan,  Naples,  Palermo,  Turin,  Verona,  and  Venice. 

However,  until  further  legislative  provision  is  made, 
and  so  long  as  the  convertibility  of  government  notes 
with  coin  shall  remain  suspended,  the  exchange  of  the 
notes  of  the  banks  of  issue  may  be  made  either  in  govern- 
ment notes  or  metallic  specie. 


266 


Law    Relating    to    Banks    of   Issue 

In  the  latter  case  the  said  banks  shall  have  the  right 
to  collect  from  the  bearers  of  the  respective  notes  the 
price  of  exchange  of  the  metalHc  specie,  as  determined  by 
the  rate  of  that  day  in  the  nearest  stock  exchange. 

ARTICLE  9. 

[Article  2,  law  of  June  30,  1891,  No.  314.     Article  4,  law  of  August  10,  1893, 
No.  449.     Law  of  December  24,  1908,  No.  723.] 

The  notes  of  the  Bank  of  Italy,  the  Bank  of  Naples, 
and  the  Bank  of  Sicily  have  legal  circulation  up  to  and 
including  the  year  1909  in  those  provinces  in  which  there 
is  a  branch  or  representative  of  the  institution  which  has 
issued  the  same,  subject  to  the  charge  for  exchange,  as 
prescribed  in  the  preceding  article. 

The  several  institutions  may  agree  to  reciprocal  repre- 
sentation for  the  purpose  of  effecting  exchange. 

ARTICLE  10. 
[Article  17,  law  of  April  7,  1881,  No.  133.] 

The  Royal  Treasury  may  accept  the  notes  of  the  banks 
of  issue,  even  when  such  notes  shall  no  longer  have  legal 
currency. 

Section  III. — Reserve. 

ARTICLE  II. 

[Article  6,  law  of  August  10,  1893,  No.  449.  Article  31,  law  of  August  8, 
1895,  No.  486.  Article  19,  aforenamed  agreement  of  November  28,  1896. 
Article  13,  Appendix  C,  to  law  of  June  7,  1897,  No.  9.  Articles  7,  8,  and  9, 
law  of  March  3,  1895,  No.  47.  Article  2,  law  of  February  16,  1899,  No.  45. 
Article  2,  law  of  December  27,  1903,  No.  499.  Article  19,  law  of  July  7, 
1905,  No.  350.] 

The  reserve  of  banks  of  issue  must  not  be  less  than  40 
per  cent  of  the  circulation  within  the  normal  limit,  as  per 
article  6. 


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National    Monetary     Commission 


The  metallic  portion  must  be  in  Italian  legal  coin, 
foreign  money  admitted  to  legal  circulation  in  the  King- 
dom, and  gold  bars;  and  it  must  consist  of  at  least  three- 
fourths  gold. 

Fractional  silver  coin  may  be  included  in  the  metallic 
reserve  of  an  institution  only  up  to  2  per  cent  of  the  total 
of  the  said  metallic  reserve. 

The  following  may  be  included  in  the  40  per  cent  of  the 
aforesaid  reserve: 

1.  Bills  of  exchange,  drawn  on  first-class  foreign  firms, 
which  are  recognized  as  such  by  the  minister  of  the 
treasury. 

2.  Certificates  of  sums  deposited  in  current  accounts 
abroad  in  large  banks  of  issue  or  with  banks  or  bankers 
correspondents  of  the  treasury. 

3.  Treasury  bonds  of  the  British  treasury,  and,  in 
general,  treasury  bonds  of  other  foreign  countries,  for 
terms  even  longer  than  three  months,  except  as  per 
paragraph  i,  article  14.  These  classes  of  securities  may 
be  included  as  part  of  the  aforementioned  reserve  as 
follows : 

For  the  Bank  of  Italy  up  to  15  per  cent. 

For  the  Bank  of  Naples,  up  to  15  per  cent,  except  as 
per  article  13 ;  on  condition,  however,  that  8  per  cent  must 
be  exclusively  in  foreign  government  treasury  bonds. 

For  the  Bank  of  Sicily  up  to  15  per  cent. 

The  bills  of  exchange,  certificates,  and  treasury  bonds 
aforesaid  must  be  payable  in  gold  or  in  coin  at  the  full 
valuation  of  the  Latin  Monetary  Union. 

The  certificates  of  amounts  deposited  abroad  in  current 
accounts  must  not  in  any  case  represent  a  value  more 
than  3.50  per  cent  of  the  above-named  circulation. 


268 


Law    Rel ating    to    Banks    of    Issue 

ARTICLE  12. 

[Article  8,  Appendix  B,  to  law  of  January  17,  1897,  No.  9.     Article  9  of 

same  law.] 

The  interest  of  the  ItaUan  Government  bonds  or  of 
bonds  guaranteed  by  the  State,  acquired  by  the  Bank  of 
Naples  in  1897,  together  with  the  notes  furnished  to  it 
by  the  treasury  in  exchange  for  gold  coin  and  temporarily 
included  in  its  reserve,  is  to  be  used  every  six  months  for 
the  reintegration  of  its  metallic  reserve  in  gold  coin,  thus 
providing  for  a  gradual  restitution  of  government  notes 
to  the  treasury  in  redemption  of  an  equal  amount  of  gold 
to  be  kept  in  its  vaults. 

The  guaranty  clause  in  favor  of  holders  of  notes  issued 
by  the  bank,  applying  to  the  personal  certificates  of  the 
aforesaid  bonds  shall  continue  in  force  until  redemption 
of  the  gold  reserve  shall  have  been  completed.  The 
government  notes  which  are  returned  to  the  treasury 
shall  be  withdrawn  from  circulation. 

ARTICLE  13. 

[Articles  10  and  15,  Appendix  B  to  the  law  of  January  17,  1897,  No.  9. 
Article  4,  law  of  December  24,  1903,  No.  499.  Article  19,  law  of  July  4, 
1905,  No.  350.] 

The  Bank  of  Naples,  besides  the  15  per  cent,  as  per 
article  11,  is  empowered  to  invest  up  to  14,000,000  of  its 
metallic  working  fund  in  treasury  bonds  of  foreign 
governments,  payable  in  gold  or  in  silver  at  the  full 
valuation  of  the  Ivatin  Union,  or  in  foreign  bills  of  exchange 
or  current  accounts  payable  at  the  same  rates,  subject  to 
the  gradual  redemption  of  gold  specie  paid  into  the  treasury 
in  exchange  for  the  issue  of  state  bonds  as  per  the  pre- 
ceding article,  and  to  an  amount  not  exceeding  one -half 
the  amount  of  specie  released  annually. 

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National    Monetary     Commission 

The  Government  may,  in  view  of  the  conditions  of  the 
money  market,  and  the  condition  of  the  government 
balance,  suspend  such  power  of  investment  of  the  metallic 
working  fund  of  the  bank,  or  may  reduce  the  amount 
which  may  be  invested,  on  condition  that  it  compensate 
the  institution  for  the  loss  of  benefits  which  it  might 
derive  therefrom  by  a  corresponding  allowance  on  the 
amount  of  the  annual  circulation  tax.  Such  allowance 
may  not,  in  any  case,  exceed  the  sum  of  350,000  lire. 

ARTICLE  14- 

[Article  31,  law  of  August  8,  1895,  No.  486.     Article  9,  law  of  March  3,  1898, 

No.  47.] 

The  requirements  for  the  inclusion  of  bills  of  exchange 
on  foreign  countries  in  the  reserve  fund,  the  forms  of 
certificates  of  foreign  current  accounts,  and  the  rules  for 
balancing  the  relative  active  deposits  are  determined  by 
the  royal  decree  of  October  10,  1895,  No.  62 7. « 

Whenever  the  treasury  bonds  designated  in  article  11, 
No.  3,  are  for  terms  exceeding  three  months,  their  value 
shall  be  diminished  by  a  sum  equal  to  their  loss  in  value 
in  case  such  bonds  should  be  discounted  or  rediscounted. 

ARTICLE  15. 

[Article  2,  law  of  January  17,  1897,  No.  9.  Article  3,  agreement  of  Novem- 
ber 28,  1896,  before  mentioned.  Article  9,  Appendix  B,  and  2,  Appendix 
C,  to  law  of  January  17,  1897,  No.  9.  Article  3,  agreement  of  November 
26,  1907,  law  of  December  31,  1905,  No.  804,  Appendix  A.] 

Anything  in  the  article  11  to  the  contrary  notwith- 
standing, the  metallic  reserve  for  the  circulation  granted 
to  the  three  banks,  actual  or  equalized  by  process  of  law, 
must  in  no  case  fall  below  the  minimum  irreducible  limit 

o  Appendix  I. 


270 


Law    Relating    to    Banks     of   Issue 

of  400,000,000  lire  for  the  Bank  of  Italy,  of  120,000,000 
lire  for  the  Bank  of  Naples  (excepting,  in  the  case  of  the 
Bank  of  Naples,  the  substitution,  as  per  article  12,  of 
Italian  Government  bonds,  or  bonds  guaranteed  by  the 
State,  for  a  part  of  said  bank's  gold  reserve),  and  of 
28,000,000  lire  for  the  Bank  of  Sicily.  These  said  sums 
are  to  act  exclusively  as  a  guaranty  for  an  equal  amount 
of  notes  in  circulation  of  the  three  institutions. 

The  holders  of  that  portion  of  the  notes  in  circulation 
which  is  not  covered  by  the  irreducible  reserve  have  a 
preferred  claim  on  the  following  assets: 

1.  Gold  specie  and  legal  silver  coin,  property  of  the 
institution,  less  the  amount  assigned  as  guaranty  for  sight 
deposits,  as  per  article  19,  and  over  and  above  the  irre- 
ducible amount; 

2.  ItaHan  treasury  bonds  or  other  ItaHan  Government 
bonds  or  bonds  guaranteed  by  the  State  at  current  value, 
including,  for  the  Bank  of  Italy,  bonds  set  aside  for  the 
Roman  Bank  in  Hquidation,  and,  for  the  Bank  of  Naples, 
those  released,  as  per  article  12,  by  successive  redemp- 
tions of  gold  specie ; 

3.  Bills  of  exchange  on  foreign  countries  not  included 
in  those  forming  part  of  the  metallic  reserve ; 

4.  Credits  for  advances  on  bonds  and  securities,  as  per 
article  29; 

5.  Domestic  discounts  in  liquid  form. 

The  circulation  of  the  Bank  of  Italy  and  the  Bank  of 
Sicily  on  account  of  their  ordinary  advances  to  the 
treasury,  is  entirely  covered  by  the  respective  bonds, 
which,  like  the  irreducible  reserve,  constitute  an  exclusive 
guarantee  in  favor  of  holders  of  the  respective  notes. 

39781°— II 18  271 


National     Monetary     Commission 

ARTICLE  i6. 
[Article  5,  law  of  March  3,  1898,  No.  47.] 

The  irreducible  metallic  reserve,  actual  or  equalized  by 
process  of  law,  as  per  the  preceding  article,  intended  solely 
to  guarantee  the  bank  notes  in  circulation,  is  held  separate 
and  distinct  from  the  other  reserve  possessed  by  the 
institutions  and  is  subject  to  the  "permanent  syndicate" 
of  the  State,  according  to  the  rules  fixed  by  a  royal  decree.* 

ARTICLE  17. 

[Article  4,  agreement  aforementioned,  November  28,  i8g6.  Article  11, 
Appendix  B,  and  Article  3,  Appendix  C,  to  law  of  January  17,  1897, 
No.  9.     Article  7,  law  of  December  31,  1907,  No.  804.] 

The  domestic  discounts  of  the  three  banks  of  issue 
will  be  relieved  from  preference  for  a  sum  equal  to  their 
respective  increase  of  amounts  invested  in  Italian  treasury 
bonds  and  in  other  bonds  of  the  Italian  Government  or 
those  guaranteed  by  the  State,  except,  in  the  case  of 
the  Bank  of  Naples,  such  as  come  under  article  12. 

ARTICLE  18. 

[Article  7,  law  of  June  30,  1891,  No.  314.     Article  21,  law  of  August  10, 

1893,  No.  449.] 

Such  notes  as  the  Bank  of  Italy  and  the  Bank  of 
Sicily  have  in  circulation  on  account  of  advances  made 
to  the  state  treasury  within  the  limits  laid  down  in 
article  25,  and  not  included  in  the  circulation  under 
article  6,  must  be  covered  by  metallic  reserve  to  the 
extent  of  not  less  than  one-third. 

«  Royal  decree  of  Aug.  3,  1898,  No.  392. 


272 


Law    Relating    to    Banks    of   Issue 

ARTICLE  19. 

[Articles  6  and  11  (paragraph  i),  law  of  August  10,  1893,  No.  449.     Article 
2,  law  of  February  16,  1899,  No.  45.] 

The  debt  of  the  several  institutions  represented  by 
promissory  notes  or  bills  of  exchange,  banking  assign- 
ments, certificates  of  credit,  or  other  certificates,  besides 
the  notes  issued  but  payable  at  sight,  must  be  guaranteed 
by  a  special  reserve,  equal  to  at  least  40  per  cent  of  the 
debt  itself,  of  which  33  per  cent  is  to  be  made  up  of 
Italian  legal  coin,  foreign  coins  admitted  to  legal  circula- 
tion in  the  Kingdom,  and  gold  bars,  while  the  remainder 
may  be  made  up  of  bills  of  the  first  class  on  foreign  coun- 
tries, recognized  as  such  by  the  treasury. 

The  metallic  portion  of  the  reserve  must  be  at  least 
three-fourths  in  gold. 

Fractional  silver  money  may  be  included  as  per 
article  11. 

Section  IV. — Circulation  tax  and  the  participation  of  the 
State  in  the  profits  of  hanks  of  issue. 

ARTICLE  20. 

[Article  13,  law  of  July  7,  1905,  No.  350.     Law  of  December  31,  1907,  No. 
804,  Appendix  A.] 

The  circulation  tax  is  based  on  the  average  effective  cir- 
culation of  notes,  deducting,  however,  an  amount  equal  to 
the  amount  of  reserve  as  per  article  1 1 .  Such  circulation 
is  not  subject  to  tax,  even  if  it  exceeds  the  limit  fixed 
by  article  6,  provided  that  the  notes  are  wholly  covered 
by  legal  coin  or  by  gold  bars  on  hand,  as  per  article  7, 
first  paragraphs 


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National    Monetary     Commission 

Freedom  from  taxation  is  also  granted  to  the  circula- 
tion on  account  of  the  ordinary  advances  to  the  treasury, 
as  per  article  25,  and  to  the  circulation  of  the  notes  of 
the  Bank  of  Italy,  as  per  article  68. 

The  rate  of  taxation  for  the  three  banks  of  issue,  on 
the  normal  circulation,  is  one-tenth  of  i  per  cent  per 
annum. 

Beginning  with  January  i,  1909,  there  will  be  remitted 
to  the  Bank  of  Naples  the  circulation  tax  on  an  amount 
of  notes  of  its  own  issue  equal  to  the  amount  of  its  cur- 
rent account  with  the  realty  branch  closed  on  December 
31,    1896,    reduced    by    the    reservations    provided    by 

article  87. 

ARTICLE  21. 

[Law  of  December  31,  1907,  No.  804.] 

The  tax  shah  be  equal  to  one-third  of  the  rate  of  dis- 

coimt  of  the  circulation  of  notes  exceeding  the  normal 

limit,  provided  that  the  prescribed  relation  be  maintained 

with  the  metallic  reserve,  as  per  article  11,  and  provided 

such   excessive   circulation  be  not   above   the  following 

amounts : 

Lire. 

Bank  of  Italy 50,  000,  000 

Bank  of  Naples 15,  000,  000 

Bank  of  Sicily 4>  000,  000 

When  the  circulation  of  notes  exceeds  these  amounts, 
the  tax  on  the  excessive  circulation,  up  to  twice  these 
same  amounts  shall  be  equal  to  two-thirds  of  the  rate  of 
discount,  provided  always  the  prescribed  relation  be 
maintained  with  the  metaUic  reserve. 

On  the  circulation  which  exceeds  the  amounts  of 
100,000,000  hre  and  up  to  150,000,000  lire  for  the  Bank 


274 


Law    Relating    to    Banks     of    Issue 

of  Italy,  30,000,000  lire  and  up  to  45,000,000  lire  for 
the  Bank  of  Naples,  and  8,000,000  lire  and  up  to  12,000,000 
lire  for  the  Bank  of  Sicily,  provided  that  the  prescribed 
relation  with  the  metallic  reserve  be  maintained,  the 
tax  shall  be  equal  to  the  whole  rate  of  discount. 

On  further  excesses  of  circulation,  or  when  the  pre- 
scribed relation  with  the  metallic  reserve  is  not  main- 
tained, the  institutiofis  shall  pay  to  the  State  an  extraor- 
dinary tax  of  7.50  per  cent. 

ARTICLE  22. 

[Article  10,  law  of  August  10,  1893,  No.  449.     Article  3,  law  of  July  2,  1896, 

No.  253.] 

The  circulation  tax  on  notes,  and  that  imposed,  as  pre- 
scribed by  article  67  of  the  law  (Text)  of  July  4,  1897, 
No.  414,  on  the  circulation  of  sight  bills  therein  described, 
shall  be  paid  between  January  20  and  July  20  of  each 
year,  at  the  average  rate  of  the  respective  circulation 
ascertained  for  the  six  months  preceding. 

ARTICLE  23. 

[Article  16,  agreement  before  mentioned  of  November  28,  1896.  Article  x6, 
Appendix  B  to  law  of  January  17,  1897,  No.  9.  Article  12,  Appendix  C 
to  law  of  January  17,  1897,  No.  9.  Appendix  A  to  law  of  December  31, 
1907,  No.  804.  Article  5,  agreement  of  November  29,  1908,  between  the 
Bank  of  Italy  and  the  Government  and  approved  by  law  of  December 
24,  1908,  No.  123.] 

Beginning  with  January  i,  1909,  the  State  shall  par- 
ticipate in  the  earnings  of  the  Bank  of  Italy  exceeding 
5  per  cent  per  annum  on  the  capital  invested,  net  after 
making  all  deductions  prescribed  in  the  succeeding  article, 
and  in  the  earnings  of  the  Bank  of  Naples  and  the  Bank 
of  Sicily  exceeding  5  per  cent  on  the  total  free  capital — 


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National    Monetary     Commission 

capital  and  surplus — to  be  determined  at  the  time  this 
present  article  goes  into  effect. 

The  State  shall  participate  to  the  extent  of  one-third  of 
the  net  earnings  exceeding  5  per  cent  when  such  net  earn- 
ings do  not  exceed  6  per  cent;  one-half  of  the  said  earn- 
ings when  such  earnings  exceed  6  per  cent. 

ARTICLE  24. 

[Article  13,  law  of  August  10,  1893,  No.  449.  Article  7,  Appendix  B  to 
law  of  January-  7,  1897,  No.  9.  Article  i,  Appendix  C  to  law  of  January 
17,  1897,  No.  9.  Article  4,  law  of  December  31,  1907,  No.  804.  Article 
5,  aforesaid  agreement  of  November  29,  1908.] 

In  the  years  1909  to  1923,  inclusive,  5  per  cent  of  the 
net  earnings  of  the  Bank  of  Italy  shall  be  deducted  from 
the  net  earnings  for  the  fiscal  year  for  a  pension  fund,  as 
stipulated  by  article  i  of  the  agreement  of  November  29, 
1908,  between  the  said  bank  and  the  Government,  and  in 
the  years  1914-1923  a  constant  annuity  of  750,000  lire 
shall  be  deducted,  for  the  same  purpose  and  from  the 
same  earnings,  before  declaring  a  dividend. 

In  the  year  1923,  by  agreement  between  the  royal  treas- 
ury and  the  administration  of  the  bank,  the  necessary 
measures  shall  be  taken  to  assure  a  pension  to  such  as 
are  on  the  pay  rolls  of  defunct  institutions  from  1924  and 
on;  if  there  shall  be  a  final  remainder,  it  shall  go  even- 
tually into  the  earnings  of  the  institution. 

The  banks  of  Naples  and  of  Sicily  shall  be  empowered  to 
grant,  yearly,  to  approved  purposes  of  pubhc  utility  and 
benefit,  a  sum  which  must  not  exceed  one- tenth  of  the 
earnings  of  the  previous  year. 


'276 


Law    Relating    to    Banks    of   Issue 

The  Bank  of  Sicily  is  authorized  to  give  for  agricultural 
education  in  Sicily  one-tenth  of  the  net  earnings  of  its 
agrarian  credit  and  two-hundredths  of  those  of  the  bank- 
ing business. 

T1T1.H  III. — Advances  to  the  Treasury. 

ARTICLE  25. 

[Article  30,  law  of  August  8,  1895,  No.  486.     Article  11,  law  of  March  3, 

1898,  No.  47.] 

The  total  amount  of  advances  which  the  banks  of  issue 
must  make  to  the  treasury  is  fixed  at  125,000,000  lire, 
divided  as  follows: 

Lire. 

Bank  of  Italy 115,  000,  000 

Bank  of  Sicily 10,  000,  000 

The  interest  due  from  the  treasury  on  said  advances  is 
made  up  at  the  rate  of  1.50  per  cent  free  of  all  taxation. 

Title  IV. — Operations. 

ARTICLE  26. 
[Article  12,  law  of  August  10,  1893,  No.  449.] 
The  institutions  of  issue  can  not  carry  on  operations 
other  than  those  indicated  in  the  following  articles : 

Section  I. — Discounts. 

ARTICLE  27. 
[Article  12,  law  of  August  10,  1893,  No.  449,] 

Banks  of  issue  may  discount  for  not  more  than  four 
months : 

(a)  Bills  of  exchange  bearing  the  signatures  of  two  or 
more  persons  or  firms  well  known  to  be  solvent. 

(6)  Treasury  bonds. 


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National    Monetary    Commission 

(c)  Warrants  {note  di  pegno)  issued  by  public  ware- 
house companies  legally  constituted  and  free  consignments 
{franchi  depositi) . 

(d)  Stock  certificates  on  which  the  bank  may  make 
advances. 

ARTICLE  28. 

[Article  5,  law  of  December  27,  1903,  No.  449.     Law  of  December  31,  1907, 
No.  804  (Appendix  A).     Article  8,  law  of  July  5,  1908,  No.  404.] 

During  the  legal  currency  of  notes  the  normal  rate  of 
discount  is  the  same  for  all  the  banks  and  may  not  vary 
without  the  authorization  of  the  minister  of  the  treasury. 

The  minister  of  the  treasury,  by  a  provision  apphcable 
to  all  three  banks  simultaneously,  may  effect  changes  in 
the  normal  rate  of  discount  whenever  he  may  consider 
that  conditions  of  the  market  so  require. 

But  the  banks  may  discount,  at  a  charge  of  i  per  cent 
or  less,  bills  of  exchange  presented  by  people's  banks, 
mining  banks,^  and  by  such  institutions  of  discount  and 
agricultural  credit  as  are  organized: 

1.  To  serve  as  intermediaries  between  the  small  trades- 
men and  the  banks  of  issue. 

2.  To  discount  warrants  of  public  warehouses  and  con- 
signments free  taxation  {franchi  depositi) . 

The  banks  of  issue  are  also  authorized  to  discount  at  i 
per  cent  or  less,  for  two-thirds  of  their  value,  warrants 
issued  on  citrus  products,  on  whose  certificates  of  deposit 
in  the  pubHc  warehouses  the  Chamber  of  Citrus  Fruit, 
established  by  law  of  July  5,  1908,  No.  404,  has  made 
advances,  except  as  per  article  1 2  of  the  same  law. 

a  See  the  royal  decree  of  February  9,  1908,  No.  62  (Appendix  III). 


278 


Law    Relating    to    Banks     of    Issue 

Said  discount  at  preference  rate  must  not  exceed: 

Lire. 

For  the  Bank  of  Italy loo,  ooo,  coo 

For  the  Bank  of  Naples 3o>  ooo>  0°° 

For  the  Bank  of  Sicily • 9>  ooo^  00° 

The  banks  may  moreover  apply  the  preferential  rate 
to  the  direct  discount  of  warrants: 

(a)  Issued  by  the  companies,  as  per  article  2  of  the  law 
of  July  8,  1903,  No.  320,  which  conduct  the  public  stores 
for  vegetables. 

{h)  On  silks  deposited  in  pubHc  warehouses  legally 
constituted. 

(c)  On  sulphur  deposited  in  public  or  similar  warehouses 
as  per  article  13  of  the  royal  decree  of  July  22,  1906, 
No.  378. 

Besides  the  exceptions  considered  in  this  article,  the 
banks  of  issue  may  charge  discount  on  bills  of  exchange, 
during  the  period  of  their  legal  currency,  at  a  rate  lower 
than  the  normal,  under  the  circumstances  determined  by 
the  royal  decree  of  October  25,  1895,  No.  639. '^ 

The  said  rate,  which  must  in  no  case  be  less  than  3 
per  cent,  may  be  varied  by  decree  of  the  minister  of  the 
treasury,  with  the  consent  of  the  banks  of  issue,  whenever 
the  conditions  of  the  market  render  it  advisable. 

a  Appendix  II. 


279 


National     Monetary     Commission 


Section  II . — Advances.'' 

ARTICLE  29. 

[Law  of  December  31,   1907,  No.  804  (Appendix  A).     Article  19,  law  of 
July  12,  1908,  No.  444.] 

The  banks  may  make  advances  for  not  more  than  four 
months : 

1 .  On  government  bonds  or  treasury  bonds.  On  long- 
term  treasury  bonds  an  advance  may  be  made  for  as  long 
as  two  years,  under  article  3  of  the  law  of  April  7,  1892, 
No.  III. 

2.  On  bonds  guaranteed  by  the  Government  or  of  which 
the   Government  has  guaranteed  the   interest,   whether 

o  By  virtue  of  article  5,  of  the  royal  decree  of  July  11,  1904,  No.  337, 
having  force  of  law,  the  banks  of  issue  are  authorized  to  make  advances  on 
the  special  notes  issued  by  the  Autonomous  Section  of  Communal  and  Pro- 
vincial Credit  in  accordance  with  the  law  of  July  8,  1904,  No.  320,  and  the 
accompanying  decree,  under  the  conditions  fixed  by  the  present  article  of 
the  Text  of  the  banking  laws  for  advances  on  "government  bonds  or  bonds 
guaranteed  by  the  State." 

By  article  6  of  the  law  of  June  25,  1905,  No.  261,  the  certificates  authorized 
by  article  2  of  the  same  law  and  already  issued,  or  such  as  shall  be  issued, 
under  succeeding  laws,  are  equalized  for  all  intents  and  purposes — and 
therefore  for  the  purposes  of  this  present  Text  of  law — with  ' '  bonds  on 
the  public  debt  of  the  State  or  bonds  guaranteed  by  the  State." 

According  to  article  13  of  the  agreement  of  Mar.  26,  1906,  between  the 
Government  and  the  Italian  Southern  Railway  Company  and  approved  by 
law  of  July  15,  1906,  No.  324,  the  obligations  issued  up  to  and  including  Mar. 
26,  1906,  by  the  said  company  under  its  statutes  are  placed  on  a  parity  with 
"bonds  directly  guaranteed  by  the  State,"  in  the  purview  of  article  12  of 
the  banking  law  of  Aug.  10,  1893,  No.  449,  and  also  of  articles  29  and  32  of 
this  present  text. 

According  to  article  3  of  the  agreement  of  July  20,  1906,  between  the 
Government  and  the  Bank  of  Italy  for  a  loan  in  favor  of  the  colony  of 
Eritrea — an  agreement  approved  by  royal  decree  of  Aug.  26,  1906,  No. 
531— the  personal  certificates  of  debt  given  to  the  said  bank  in  relation  to 
the  said  operation  are  considered  "for  all  purposes  as  government  bonds." 

As  such  will  also  be  considered  the  certificates  to  be  issued  by  the  govern- 
ment of  Eritrea  to  the  Bank. of  Italy,  as  per  the  royal  decree  of  Dec.  6,  1908, 
No.  755. 

280 


Law    Relating    to    Banks     of    Issue 

directly    or   by   subvention   expressly   restricted   to   the 
payment  of  said  bonds. 

3.  On  notes  of  realty  credit  institutions. 

4.  On  notes  issued  under  the  law  of  June  25,  1906,  No. 
255,  by  the  department  temporarily  annexed  to  the  Catan- 
zaro  branch  of  the  Agrarian  Credit  Institution  "Vittorio 
Emmanuele  III." 

5.  On  bonds  payable  in  gold,  issued  or  guaranteed  by 
foreign  States. 

On  bonds  classed  under  Nos.  i,  2,  and  3,  and  on  long- 
term  treasury  bonds,  advances  may  be  made  up  to  nine- 
tenths  of  their  market  value. 

On  bonds  under  No.  4,  up  to  three-fourths  of  their 
current  value. 

On  bonds  under  No.  5,  up  to  four-fifths  of  their  market 
value. 

On  treasury  bonds  up  to  their  full  value. 

None  of  the  above-named  bonds  may  be  reckoned  at 
more  than  the  nominal  value. 

6.  On  gold  and  silver  coins,  whether  national  or  foreign, 
in  legal  circulation,  and  on  gold  bars. 

7.  On  silks,  raw  and  in  organzine  or  woven,  reckoned  at 
not  more  than  three-fourths  of  their  current  value,  and 
on  silver  bars  reckoned  at  not  more  than  two- thirds  of 
their  current  value. 

8.  On  certificates  of  deposit  issued  by  public  ware- 
houses legally  established  and  on  consignments  free  of 
taxation  (franchi  depositi),  and  on  orders  of  merchandise 
or  sulphur,  for  not  more  than  two-thirds  of  the  value  of 
the  merchandise  which  they  represent. 


281 


National    Monetary     Commission 

9.  On  certificates  of  deposits  of  spirits  and  cognac 
actually  on  hand  in  the  warehouses  estabhshed  accord- 
ing to  articles  8  and  9  of  the  Text  of  the  law  on  spirits, 
approved  by  royal  decree  of  September  16,  1909,  No. 
704,  for  not  more  than  one -half  of  the  value  of  the  alcohol 
and  cognac  deposited. 

The  banks  may,  moreover,  make  advances  up  to  six 
months. 

(a)  On  certificates  of  deposits  of  silks,  issued  by  public 
warehouses  legally  established. 

(6)  On  certificates  of  deposits  of  sulphur  issued  by 
public  warehouses,  for  which  see  law  of  July  15,  1906, 
No.  333,  and  on  certificates  equalized  therewith  by 
article  13  of  the  royal  decree  of  July  22,  1906,  No.  378, 
up  to  four-fifths  of  the  value  of  the  sulphur  represented 
by  the  said  certificates,  net  after  all  deductions,  as  per 
the  law  of  June  6,  1907,  No.  286. 

The  rate  of  interest  on  such  advances  may  be  less  by 
not  more  than  i  per  cent  than  the  normal  rate  on  other 
advances. 

(c)  On  certificates  of  deposit  issued  by  public  ware- 
houses dealing  in  citrus  fruits  and  their  products,  con- 
ducted by  companies  as  per  article  2  of  the  law  of  July 
8,  1903,  No.  320,  for  not  more  than  two-thirds  the  value 
of  the  merchandise  which  they  represent. 

(d)  On  deposits  of  products  of  citrus  fruits  up  to 
two-thirds  of  their  value. 

{e)  On  the  obligations  issued  as  per  article  171  of 
the  Commercial  Code;  article  3,  law  of  July  9,  1905, 
No.  415;  article  8,  law  of  June  16,  1907,  No.  540;  articles 


282 


Law    Relating    to    Banks    of    Issue 

7  and  8,  law  of  July  12,  1908,  No.  444,  by  grantee  railway 
and  subsidized  extraurban  tramway  companies,  for  not 
more  than  three-fourths  the  current  value  of  such 
obligations. 

ARTICLE  30. 

[Article  35,  law  of  August  8,  1895,  No.  486.     Article  26,  Appendix  P  to 

same  law.] 

During  their  legal  circulation,  the  legal  interest  on 
advances  (see  preceding  article)  is  the  same  for  all  the 
banks,  and  may  not  vary  without  the  authorization  of 
the  Government. 

The  minister  of  the  treasury  may  change  the  interest 
rate  on  advances  whenever  he  deems  that  the  conditions 
of  the  market  require  it. 

Section    III. — Purchase   and    sale    of   hills   of   exchange, 
drafts,  and  assignments  on  foreign  countries. 

ARTICLE  31. 

[Article  12,  law  of  August  10,  1893,  No.  449.     Law  of  December  31,  1907, 
No.  804,  Appendix  A.] 

The  banks  of  issue  may  purchase  and  sell  for  cash  or 
on  time,  on  their  own  account,  drafts  and  assignments 
on  foreign  countries,  and  bills  of  exchange  on  foreign 
countries  bearing  the  signatures  of  two  or  more  firms 
well  known  to  be  solvent,  for  a  term  not  greater  than 
three  months,  and  payable  in  gold.  Such  operations, 
during  their  legal  currency,  may  not,  without  authoriza- 
tion from  the  minister  of  the  treasury,  be  extended 
further  than  may  be  necessary  for  the  said  banks  to 
restore  their  metallic  reserve,  to  convert   into  deposits 


283 


National    Monetary     Commission 

abroad  such  personal  certificates  as  may  be  used  for 
the  payment  of  import  duties,  or  to  satisfy  possible 
orders  of  the  treasury. 

The  banks  of  issue  may  make  investments  in  foreign 
bills  of  exchange  and  accounts  current,  not  intended 
for  the  reserve  covering  circulation  and  sight  debts, 
within  such  limits  as  may  be  prescribed  by  the  minister 
of  the  treasury,  in  view  of  the  general  conditions  of  the 
money  market.'' 


Section  IV. — Direct  investments. 


ARTICLE  3 


[Article  12,  law  of  August  10,  1893,  No.  449.  Article  32,  law  of  August 
8,  1895,  No.  486.  Article  14,  law  of  July  7,  1905,  No.  349.  Article  57, 
law  of  June  25,  1906,  No.  255.] 

The  banks  of  issue  may  bave  a  working  fund  in 
Italian  bonds,  or  other  bonds  issued  or  guaranteed  directly 
by  the  Government,  of  a  current  value  not  to  exceed: 

Lire. 

For  the  Bank  of  Italy 75,  000,  000 

For  the  Bank  of  Naples 30,  000,  000 

For  the  Bank  of  Sicily 8,  000,  000 

o  Royal  decree  of  Sept.  17,  1908,  No.  585. 

&  By  the  terms  of  article  5  of  the  royal  decree  of  July  11,  1904,  No.  337, 
"having  force  of  law,"  the  banks  of  issue  are  authorized  to  make  use  of 
the  special  realty  bonds  (cartelle)  issued  by  the  Autonomous  Section  of 
Communal  and  Provincial  Credit  as  per  the  law  of  July  8,  1904,  No,  320, 
and  the  corresponding  decree,  for  the  conversion  of  the  loan  of  the  Commune 
of  Rome,  for  all  the  purposes  and  investments  for  which  said  banks  of 
issue  are  authorized  to  employ  government  bonds  and  bonds  guaranteed 
by  the  States. 

See  note  to  article  29  regarding  the  equalization  of  railway  certificates 
and  the  obligations  of  the  Italian  Southern  Railway  Companies  with  govern- 
ment bonds  and  bonds  guaranteed  by  the  State. 

By  article  3  of  the  agreement  entered  into  July  20,  1906,  between  the 
Government  and  Bank  of  Italy  for  a  loan  to  the  colony  of  Eritrea,  which 


284 


Law    Relating    to    Banks     of    Issue 

The  banks  of  issue  are  also  authorized  to  invest  in 
ItaHan  consoHdated  bonds  or  in  the  aforesaid  bonds  the 
free  portion  of  their  respective  surplus,  over  and  above 
their  working  fund,  within  the  limitations  above  estab- 
lished, and  over  and  above  the  investments  as  per 
articles  34  and  35,  within  the  limitations  therein  estab- 
lished. 

With  the  previous  authorization  of  the  treasury,  the 
Bank  of  Italy  and  the  Bank  of  Sicily  may  employ  in  the 
acquisition  of  realty  bonds  3.75  per  cent  or  less  of  their 
respective  realty  credits:  the  former  up  to  five  and  the 
latter  up  to  two  miUions  of  the  surplus. 

The  banks  of  issue  are,  moreover,  authorized  to  acquire 
the  realty  bonds  issued,  under  article  57,  law  of  June  25, 
1906,  No.  255,  by  the  department  temporarily  annexed  to 
the  Catanzaro  branch  of  the  Agrarian  Institution  of 
Credit  "Vittorio  Emmanuele  III." 

ARTICLE  33. 

[Article  3,  law  of  June  25,  1905,  No.  261.] 

The  state  railway  bonds,  issued  to  the  banks  of  issue 
under  article  2  of  the  law  of  June  25,  1905,  No.  261,  may 
be  used  for  two  purposes,  namely,  for  new  investments  of 

agreement  was  afterwards  approved  by  royal  decree  of  Aug.  26,  1906,  No. 
531,  the  said  bank  is  entitled  to  make  use  of  the  special  personal  certifi- 
cates of  debt,  granted  to  it  as  an  equivalent,  and  considered  "for  all  pur- 
poses as  government  bonds,"  in  all  transactions  in  bonds  made  within 
the  limitations  and  for  the  ends  established  by  the  provisions  of  the  present 
Text.  According  to  the  said  article  of  the  agreement,  the  bank  must  assign 
by  preference  such  certificates  to  cover  fixed  transactions  provided  for 
by  the  laws  in  force. 

For  the  same  purpose  it  may  use  the  certificates  which  may  be  issued 
to  it  by  the  government  of  Eritrea,  as  provided  by  article  i  of  the  royal 
decree  of  Dec.  6,  1908,  No.  755. 


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National     Monetary     Commission 

money  in  bonds,  whether  said  investments  are  on  their 
own  account  or  for  affiUated  enterprises,  within  the  Hmi- 
tations  and  for  the  objects  specified  by  the  provisions  of 
this  present  text,  and  to  surrogate  bonds  of  various 
kinds  ah-eady  held  by  them,  especially  if  protected  by 
security.  Such  surrogation  shall  take  place  after  a  previ- 
ous agreement,  for  the  protection  of  the  bond  market, 
between  the  administrations  of  the  banks  of  issue  and  the 
minister  of  the  treasury. 

ARTICLE  34. 

[Articles  8  and  9,  Appendix  C  to  law  of  January  17,  1897,  No.  9.     Article  2, 
law  of  March  3,  1898,  No.  47.] 

The  Bank  of  Sicily  is  authorized  to  invest  in  Italian 
treasury  bonds,  without  time  Umit,  the  sums  received  up 
to  and  including  month  of  December,  1899,  from  the 
liquidation  of  "immobilizations,"  provided  that  such 
sums  be  not  over  2^  million  lire. 

The  bonds  thus  acquired  shall  go  to  increase  the  work- 
ing fund,  for  which  see  article  32. 

ARTICLE  35- 
[Article  6,  Appendix  C  to  law  of  January  17,  1897,  No.  9.] 

The  Bank  of  Sicily  is  authorized  to  invest  in  government 
bonds,  besides  the  ordinary  working  fund  and  the  bonds 
appHed  to  the  surplus,  a  sum  equal  to  that  which,  as  a 
result  of  the  liquidation  of  the  account  cturent  with  the 
realty  branch  {azienda  fondiaria) ,  shall  be  reahzed  from 
"immobiUzations,"  less  the  last  grant  to  the  said  realty 
branch  of  300,000  lire. 


286 


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Section  V. — Deposits  in  accounts  current. 

ARTICLE  36. 

[Article  12,  law  of  August  10,  1893,  No.  449.  Article  2,  Appendix  Etc 
law  of  July  22,  1894,  No.  339.  Article  34,  law  of  August  8,  1895,  No.  486. 
Article  7,  law  of  July  2,  1896,  No.  253.     Law  of  July  15,  1909,  No.  492.] 

The  banks  of  issue  may  receive  deposits  in  accounts 
current  bearing  interest.  When  the  total  of  such  deposits 
exceeds : 

Lire. 

For  the  Bank  of  Italy 200,  000,  000 

For  the  Bank  of  Naples 80,  000,  000 

For  the  Bank  of  Sicily 25,  000,  000 

the  institutions  shall  reduce  their  circulation  by  one-third, 

except  in  the  case  of  the  Bank  of  Sicily,  for  which  see 

article  51. 

ARTICLE  37. 

[Article  12,  law  of  August  10,  1893,  No.  449.     Law  of  July  15,  1909,  No,  492.] 

The  rate  of  interest  on  interest-bearing  accounts  current 
must  not  exceed  one-third  of  the  rate  of  discount. 

The  minister  of  the  treasury  has  the  right  to  authorize 
the  banks  of  issue  to  secure  to  interest-bearing  deposits 
in  current  account  a  rate  of  interest  not  greater  than 
three-fourths  of  the  rate  paid  on  deposits  in  the  Postal 
Savings  Bank. 

Section  VI. — Issue  of  customs  certificates  and  provincial 

revenue  service. 

ARTICLE  38. 
[Article  7,  Appendix  I  to  law  of  July  22,  1894,  No.  339.] 

Until  further  notice  the  banks  of  issue  shall  issue  per- 
sonal certificates  for  the  payment  of  import  duties. 

These  certificates  are  issued  upon  request  against  the 
payment,  in  state  or  bank  notes,  of  the  amount  of  the 

39781°— II — 19  287 


National     Monetary     Commission 

certificate  required  plus  the  rate  of  exchange,  determined 
on  the  base  of  the  average  rates  for  bills  on  foreign 
countries  in  the  exchanges  of  Genoa,  Milan,  Naples,  and 
Rome  on  the  day  previous  to  that  on  which  the  said  cer- 
tificates are  issued. 

The  relations  between  the  treasury  and  the  banks  of 
issue,  resulting  from  the  provisions  of  the  present  article, 
are  regulated  by  special  agreement,  approved  by  royal 
decree.*^ 

The  custom  houses  will  accept  said  certificates  in  pay- 
ment of  import  duties  instead  of  metallic  currency,  pro- 
vided that  they  are  presented  within  ten  days  after  their 
date  of  issue. 

ARTICLE  39. 
[Law  of  December  31,  1907,  No.  804  (Appendix  A).] 

The  banks  of  issue  may  assume  the  duties  of  provincial 
revenue  offices. 

They  are  authorized  to  make  advances  of  overtax  to 
the  Provinces  for  which  they  have  assumed  such  offices 
for  a  sum  not  greater  than  the  total  of  two  bimonthly 
payments. 

The  sums  thus  advanced  must  be  repaid  within  the 
maximum  term  of  six  months  after  the  date  of  the  loan, 
and  a  new  advance  can  not  be  granted  until  the  expiration 
of  two  months  after  the  entire  repayment  of  the  original 
loan. 

«  Royal  decree  of  July  11,  1895,  No.  416. 


288 


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Section  VI I. — Provincial  service  of  the  Royal  Treasury. 

ARTICLE  40. 
[Article  9,  agreement  of  October  30,  1894,  before  mentioned.] 

The  Bank  of  Italy,  up  to  and  including  December  31, 
191 2,  shall  act  as  state  treasury  in  all  the  Provinces  of  the 
Kingdom,  subject  to  fixed  rules  ^  and  regulations. 

ARTICLE  41- 

[Article  10,  agreement  of  October  30,  1894,  before  mentioned.] 

The  guaranty  bond  for  the  administration  of  the 
treasury  is  90,000,000  lire  in  government  bonds  or  bonds 
guaranteed  by  the  State,  calculated  at  the  market  value, 
less  the  deduction  of  one-twentieth  of  the  value  thus 
determined,  the  difference  to  be  made  good  in  the  event 
of  a  drop  in  the  market. 

In  this  guaranty  bond  is  included  the  sum  set  aside 
by  the  Bank  of  Italy  under  articles  2  and  3  of  the  agree- 
ment entered  into  with  the  Government  on  October  30, 
1894,  and  approved  by  royal  decree  of  December  10, 
1894,  No.  533,  reproduced  in  Appendix  Q  to  the  law  of 
August  8,  i8q5,  No.  496. 

ARTICLE  42. 
[Article  12,  agreement  of  October  30,  1894,  before  mentioned.] 

As  a  fund  for  the  performance  of  the  ordinary  treasury 
service  a  permanent  dotation  of  30,000,000  lire  is  granted 
to  the  bank,  with  suitable  provision  in  cases  of  extraor- 
dinary payments. 

When  the  fund  at  the  disposition  of  the  treasury  for 
any  reason  becomes  greater  than  40,000,000  Hre,  or  shows 

o  Regulation  approved  by  royal  decree  of  Jan.  15,  1895,  No.  16. 

289 


National     Monetary     Commission 

a  deficit  of  10,000,000  lire,  interest  on  the  difference  is 
due  to  the  treasury  or  the  bank,  respectively,  at  a  uni- 
form rate  of  1.50  per  cent  free  of  all  taxation. 

The  permanent  dotation  made  to  the  bank  for  the 
treasury  service  must  be  reintegrated  every  ten  days  in 
such  a  manner  that  its  amount  at  the  close  of  the  loth, 
the  20th,  and  the  last  days  of  the  month  shall  not  be 
less  than  30,000,000  Hre. 

ARTICLE  43- 
[Article  13,  agreement  of  October  30,  1894,  before  mentioned.] 

As  long  as  the  government  notes  remain  inconvertible 
with  metallic  currency,  and  the  exchange  of  notes  of  the 
banks  of  issue  is  regulated  by  the  provisions  of  article  8 
(second  and  third  paragraphs)  of  the  present  text,  the 
moneys  deposited  in  gold  and  silver  in  the  vaults  of  the 
bank  on  account  of  the  treasury  must  be  kept  in  the 
same  specie  at  the  disposition  of  the  treasury  or  as- 
signed to  payments  in  coin  to  be  designated  by  the 
treasury. 

Section  VIII. — Special  operations  of  the  Bank  of  Naples — 
Savings  branch,  pawn  office,  custody  of  remittances  and 
savings  of  Italian  emigrants  abroad. 

ARTICLE  44. 

[Article  12,  law  of  August  10,  1893,  No.  449.  Articles  3  and  12,  Appen- 
dix T  to  law  of  August  8,  1895,  No.  486.  Article  i,  law  of  Jul}^  7,  1901, 
No.  334.] 

The  Bank  of  Naples  may  continue  its  pawn-office 
operations. 

The  savings  branch  of  the  Bank  of  Naples  has  its  own 
separate  free  capital,  distinct  from  that  of  the  bank  and 
free  from  all  claim  by  the  creditors  of  the  bank. 


290 


Law    Relating    to    Banks     of    Issue 

The  bank  guarantees  with  its  whole  free  capital  all  the 
obligations  of  the  said  branch  in  favor  of  all  third  parties. 

The  branch  is  administered  by  the  director-general  of 
the  bank,  making  use  therefor  of  the  offices  and  the 
employees  of  the  bank. 

The  bank  m.ay  hold  in  interest-bearing  accounts  cur- 
rent, at  a  rate  of  interest  not  less  than  half  the  interest 
paid  by  the  branch  to  the  public,  an  amount  which  shall 
never  be  more  than  one-fifth  of  the  total  assets  of  the 
branch. 

The  branch  is  authorized  to  invest  gradually  two- 
tenths  of  its  deposits  in  agrarian  credit  operations  in 
the  southern  Provinces  and  in  Sardinia,  under  the  law  of 
July  7,  1 901,  No.  334,  and  in  accordance  with  the  regu- 
lation for  the  execution  of  the  same,''  and  to  engage  in 
such  other  operations  as  it  may  by  special  laws  be  author- 
ized to  perform. 

All  other  assets  of  the  branch  must  be  invested  exclu- 
sively in  government  bonds  or  bonds  guaranteed  by  the 
State. 

ARTICLE  45- 
[Article  i,  law  of  February  i,  1901,  No.  24.] 

The  Bank  of  Naples  is  authorized  to  collect,  hold, 
invest,  and  transmit  into  the  Kingdom  the  savings  of 
ItaUan  emigrants.  For  such  purposes,  and  with  the 
previous  authorization  of  the  treasury,  it  is  empowered 
to  make  special  agreements  with  banking  houses  and 
with  the  ministry  of  posts  and  telegraphs. 

« Regulation  approved  by  royal  decree  of  July  21,   1904,  No.  536. 


291 


National     Monetary     Commission 

It  shall  also  provide,  with  the  permission  of  the  treas- 
ury, for  the  establishment  of  agencies  where  the  need 
of  such  agencies  appears. 

The  bank  is  authorized  to  assign  up  to  2,000,000  lire 
of  its  surplus,  and,  if  necessary,  of  its  free  capital,  for  the 
establishment  of  a  dotation  fund  for  this  service. 

The  bank  is  forbidden  to  perform  any  operation  of 
discount  or  subsidy  for  emigrants  or  any  transactions 
except  those  indicated  in  the  first  paragraph  of  this  pres- 
ent article. 

The  regulation  ""  determines  the  precautions  which  the 
bank  must  take  to  protect  itself  against  possible  losses 
resulting  from  the  fluctuation  of  exchange. 

AR'JICLE  46. 
[Article  2,  law  of  February  i,  1901,  No.  24.] 

Of  the  net  profits  of  the  service  described  in  the  pre- 
ceding article,  one-half  shall  belong  to  the  Bank  of  Na- 
ples, and  is  especially  intended,  in  time,  to  bring  the 
dotation  fund  up  to  the  sum  of  2,000,000  lire  and  reim- 
burse the  surplus  or  the  free  capital  of  the  bank  for  the 
sum  withdrawn. 

The  other  half  shall  belong  to  the  "emigration  fund," 
in  conformity  with  the  rules  established  by  the  regula- 
tion. 

When  the  2,000,000  lire  shall  have  been  reimbursed 
to  the  surplus  or  the  free  capital  of  the  bank,  two-thirds 
of  the  net  earnings  shall  belong  to  the  said  "emigration 
fund." 

a  Regulation  approved  by  royal  decree  of  Dec.  29,  1901,  No.  571,  and 
modified  by  royal  decree  May  16,  1904,  No.  323,  and  Feb.  22,  1906,  No.  46. 

292 


Law    Relating    to    Banks     of   Issue 

ARTICLE  47. 
[Article  4,  law  of  February  i,  1901,  No.  24.] 

The  Bank  of  Naples  shall  make  a  yearly  report  to  the 
minister  of  the  treasury  on  the  conduct  of  the  service 
described  in  articles  45  and  46.  The  report,  with  the 
comments  of  the  permanent  commission  of  inspection  of 
banks  of  issue,  shall  be  presented  to  Parliament  by  the 
minister  of  the  treasury. 

Section  IX. — Agrarian  credit  and  savings  branch  of  the 
Bank  of  Sicily. 

ARTICLE  48. 
[Articles  i  and  2,  law  of  March  29,  1906,  No.  100.] 

An  agrarian  credit  branch  of  the  Bank  of  Sicily  is  estab- 
hshed,  to  be  known  as  "The  Agrarian  Credit  of  the  Bank 
of  Sicily." 

The  funds  necessary  for  this  branch  are  made  up  as 
follows : 

(a)  An  initial  fund  of  3,000,000  lire  furnished  by  the 
Bank  of  Sicily,  to  be  withdrawn  from  the  amount  of  the 
surplus  available  for  investment. 

(6)  An  advance  in  interest-bearing  account  current 
granted  by  the  Central  Savings  Bank  "Vittorio  Emman- 
uele"  in  Palermo  up  to  the  sum  of  2,000,000  lire,  and  in 
no  case  exceeding  two-tenths  of  the  bank's  saving  deposits. 

(c)  Three-tenths  of  the  deposits  in  the  savings  branch 
of  the  Bank  of  Sicily  as  per  article  49. 

In  the  fund  described  in  (a)  are  included  the  amounts 
at  present  invested  in  agrarian  credit  operations  transacted 
by  the  Bank  of  Sicily  by  virtue  of  the  law  of  January  23, 
1887,  No.  4276  (third  series). 


293 


National     Monetary     Commission 

ARTICLE  49- 
[Article  4,  law  of  March  29,  1906,  No.  100.] 

The  Bank  of  Sicily  is  authorized  to  act  as  a  savings 
bank  in  the  Sicihan  Provinces.  The  operations  of  the 
savings  branch  are  regulated  by  provisions  of  the  law  of 
March  29,  1906,  No.  100,  reproduced  in  the  present  text, 
and  by  the  law  of  July  15,  1888,  No.  5546  (third  series). 

ARTICLE  50. 
[Article  5,  law  of  March  29,  1906,  No.  100.] 

The  management  of  the  savings  branch  shall  be  sepa- 
rate from  that  of  the  bank  itself.  Until  such  time  as  the 
savings  branch  shall  have  acquired  from  its  annual  earn- 
ings a  free  capital  of  its  own  amounting  to  at  least  one- 
tenth  of  its  deposits,  the  bank  of  Sicily  guarantees  wdth 
its  whole  property  all  the  obligations  of  the  savings  branch 
in  favor  of  all  third  parties. 

ARTICLE  51. 

[Article  6,  law  of  March  29,  1906,  No.  100.     Article  8,  law  of  July  15,  1906, 
No.  383.     Law  of  July  15,  1909,  No.  492.] 

The  Bank  of  Sicily  may  invest  the  initial  fund,  the 
advance  in  account  current  of  the  Central  Savings  Bank 
"Vittorio  Bmmanuele"  of  Palermo,  and  not  more  than 
three-tenths  of  the  deposits  in  its  savings  branch,  in  agra- 
rian credit  operations  as  per  the  terms  of  the  law  of  March 
29,  1906,  No.  100,  and  of  the  regulation  for  its  execu- 
tion. " 

The  other  assets  of  the  savings  branch  of  the  bank  shall 
be  invested  as  follows : 

(a)  Not  more  than  two-tenths  in  an  interest-bearing 
account  current  with  the  Bank  of  Sicily. 

«  Regulation  approved  by  royal  decree  of  Dec.  23,  1906,  No.  731. 


2Q4 


Law    Relating    to    Banks    of   Issue 

(b)  The  remainder  in  bonds  issued  or  guaranteed  by  the 
State. 

The  sums  deposited  in  account  current  with  the  Bank 
of  Sicily  are  not  included  in  the  maximum  limit  of 
25,000,000  Hre,  for  which  see  article  36  of  the  present  text. 

Section  X. — Other  regulations. 

ARTICLE  52. 
[Article  56,  law  of  June  25,  1906,  No.  255.] 

The   Bank  of   Naples   shall  contribute  4,500,000  lire, 

payable  in  thirty  annual  payments  beginning  with  the 

fiscal  year  1905-6,  toward  forming  the  free  capital  of  the 

temporary  department  annexed  to  the  Catanzaro  branch 

of  the  Agrarian  Credit  Institution  "Vittorio  Emmanuele 

III,"  for  which  see  article  17  of  the  law  of  June  25,  1906, 

No.  255. 

ARTICLE  53. 

[Article  18,  law  of  July  15,  1906,  No.  S33-] 

The  Bank  of  Sicily  shall  cooperate  in  the  formation  of 
the  capital  of  the  autonomous  company  for  the  erection 
and  maintenance  of  the  public  warehouses  for  sulphur,  for 
which  see  articles  2  and  18  of  the  law  of  July  15,  1906, 
No.  333. 

The  amount  of  the  quota  shall  be  taken  by  the  bank 

from  its  surplus. 

ARTICLE  54. 

[Articles  2  and  23,  law  of  July  15,  1906,  No.  333.] 

The  2,000,000  hre  which  the  Bank  of  Sicily  has  advanced 
to  the  obligatory  "Association"  for  the  Sicilian  sulphur 
industry,  for  the  formation  of  the  capital  of  the  autono- 
mous Bank  of  Mining  Credit  for  Sicily,  shall  be  reimbursed 


295 


National    Monetary     Commission 

by  the  "Association"  to  the  Bank  of  vSicily  by  install- 
ments within  a  period  not  longer  than  eight  years,  at  the 
lowest  rate  of  interest. 

The  Bank  of  Sicily  shall  have  a  preferential  claim  on 
future  profits  on  the  sale  of  sulphur,  as  per  article  13,  No. 
2,  of  the  law  of  July  15,  1906,  No.  333,  and  on  all  assets  of 
the  before-mentioned  Bank  of  Mining  Credit. 

ARTICLE  55. 
[Article  17,  law  of  July  15,  1906,  No.  ^-^z?)-] 

The  Bank  of  Sicily  shall  act  gratuitously  as  the  cashier 
of  the  obhgatory  "Association"  of  the  Sicilian  sulphur 
industry. 

Deposits  of  the  "Association"  shall  bear  the  same  rate 
of  interest  as  that  which  the  bank  pays  on  savings  deposits 
in  interest-bearing  accounts  current. 

ARTICLE  56. 
[Article  3,  law  of  July  15,  1906,  No.  441.] 

The  savings  branches  of  the  Bank  of  Naples  and  the 
Bank  of  Sicily  are  authorized  to  set  aside  5  per  cent  of 
their  respective  annual  net  earnings  to  increase  their 
quota  of  the  amortization  of  land  taxes  due,  respectively, 
in  the  continental  provinces  of  the  former  Kingdom  of 
Naples  and  in  Sicily. 

ARTICLE  57. 

[Article  25,  law  of  April  30,  1874,  No.  1920.     Article  9,  before-mentioned 
agreement  of  October  30,  1894.] 

The  state  treasury,  except  as  under  the  agreement  of 
October  30,  1894,  entered  into  with  the  Bank  of  Italy 
regarding  its  treasury  service,  may  deposit  any  amount 


296 


Law    Relating    to    Banks     of    Issue 

with  the  branches  and  subbranches  of  any  institution  of 
credit  authorized  to  issue  notes,  and  may  demand  pay- 
ment in  full  or  in  part  from  one  or  more  branches  or  sub- 
branches  of  the  same  institution.  This  service  shall  be 
rendered  to  the  State  free  of  charge. 

ARTICLE  58. 
[Article  12,  law  of  August  10,  1893,  No.  449.] 

Banks  of  issue  are  forbidden  to  engage  in  new  land- 
credit  operations. 

ARTICLE  59. 

[Article  12,  law  of  August  10,  1893,  No.  449.] 

Any   unsecured   operation   in   account   current   is   for- 
bidden, whether  at  the  time  of  opening  an  account  or 

afterwards. 

ARTICLE  60. 

[Article  12,  law  of  August  10,  1893,  No.  449.] 

The  bonds,  securities,  and  movable  property,  which  in 

their  nature  are  different  from  those  described  in  Title  IV, 

and  which  have  come  into  the  possession  of  the  banks  as  a 

result  of  some  of  their  credits,  must  be  liquidated  within 

two  years.     The  banks  may,  however,  accept  mortgages 

on   immovable   property  for   overdue  credits,   but   they 

must  liquidate  such  operations  within  the  term  of  three 

years. 

ARTICLE  61. 

[Article  14,  law  of  August  10,  1893,  No.  449.] 

At  the  end  of  every  fiscal  year  the  new  overdue  credits 
must  pass  to  the  ''loss"  column,  and  the  amounts  recov- 
ered must  be  credited  to  the  year  in  which  they  have 
been  wholly  or  partly  collected. 


29; 


National     Monetary     Commission 

ARTICLE  62. 
[Article  14,  law  of  August  10,  1893,  No.  449.] 

Banks  which  shall  engage  in  operations  not  permitted 
by  law  are  liable  to  a  tax  equal  to  triple  the  respective 
rate  of  discount,  reckoned  on  the  total  amount  of  the 
illegal  business  transacted,  and  for  the  full  duration  of 
such  operations. 

Title  V. — Mutual  Redemption  of  Notes  Among  the 
Several  Banks. 

article  6. 

[Article  5,  law  of  August  10,  1893,  No.  449.] 

Each  bank  must  accept  in  payment  notes  of  the  other 
banks  wherever  these  have  a  branch  or  a  representative. 
Such  notes  must  be  received  also  for  regular  operations  in 
Provinces  where  they  have  legal  circulation. 

During  the  legal  circulation  of  notes  the  rules  for  their 
exchange  among  the  banks  are  established  by  a  royal 
decree  to  be  presented  to  Parhament  for  approval.^ 

ARTICLE  64. 
[Article  14,  agreement  of  October  30,  1894,  before-mentioned.] 

During  the  legal  currency  of  notes,  and  while  the 
Bank  of  Italy  performs  its  treasury  service,  said  bank  may 
not  demand  of  the  other  banks  of  issue  either  the  exchange 
or  the  redemption  of  their  notes  except  in  an  amount 
equal  to  the  amount  of  the  notes  of  the  said  Bank  of  Italy 
which  may  be  held  by  the  other  institutions. 

o  Royal  decree  of  February  27,  1894,  No.  58,  presented  on  the  same  day 
to  the  Chamber  of  Deputies  (see  acts  of  Parliament  bills  No.  318  and  318-a), 
but  not  enacted  into  law. 


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TiTivE  VI . — Liquidation  of  the  Banca  Romana. 

ARTICLE  65. 

[Article  25,  law  of  August  10,  1893,  No.  449.  Article  11,  before-mentioned 
agreement  of  October  30,  1894.  Articles  28  and  29,  law  of  August  8,  1895, 
No.  486.] 

The  liquidation  of  the  Banca  Romana  is  assumed  by 
the  Bank  of  Italy  at  its  own  risk  and  peril. 

The  time  for  the  liquidation  of  the  ''immobilizations" 
involved  in  the  liquidation  of  the  Banca  Romana  is  twenty 
years,  beginning  with  January  i,  1894,  and  at  the  rate  of 
one -fifth  of  the  total  every  four  years. 

The  State  is  not  responsible  for  losses  which  may  result 
from  such  liquidation  even  if  such  losses  shall  exceed  the 
entire  amount  to  be  contributed  by  the  Bank  of  Italy  for 
such  liquidation,  as  per  the  terms  of  article  67. 

ARTICLE  66. 
[Article  29,  law  of  August  8,  1895,  No.  486.] 

The  acts  of  sale  to  third  parties  of  real  property  pos- 
sessed by  the  Banca  Romana  on  October  i,  1894,  and 
the  transference  to  third  parties  of  credits  already  existing 
on  November  23,  1893,  Hmited  to  the  value  of  said  credits, 
are  subject  only  to  a  fixed  registration  tax  of  3.60  lire. 

Such  preference  shall  be  without  effect  after  December 
31,  1912. 


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National    M  o  7t  e  t  ary     Commission 

ARTICLE  67. 

[Article  29,  law  of  August  10,  1893,  No.  449.  Article  2,  aforesaid  agree- 
ment of  October  30,  1894.  Article  8,  aforesaid  agreement  of  November 
28,  1896.     Articles  i  and  2,  aforesaid  agreement  of  November  29,  1908.] 

The  Bank  of  Italy  vShall  pay  each  year  2,000,000  lire  on 
account  of  the  liquidation  of  the  Banca  Romana  to  cover 
losses  resulting  from  the  said  liquidation. 

If  that  shall  be  insufficient,  the  deficit  shall  be  provided 
for  from  the  extraordinary  reserve,  for  which  see  the 
aforesaid  agreement  of  November  29,  1908. 

The  advances  due  from  the  Bank  of  Italy  for  the  liqui- 
dation of  the  Banca  Romana  shall  not  bear  interest  in 
favor  of  the  former. 

ARTICLE  68. 
[Article  10,  law  of  March  3,  1898,  No.  47.] 

The  circulation  of  notes  of  the  Bank  of  Italy  not  covered 
by  metallic  reserv^e  but  representing  the  debit  of  the 
account  current  of  the  Banca  Romana  in  liquidation  is  not 
subject  to  tax. 

Such  circulation  must  never  exceed  the  amount  which 
was  registered  in  said  account  current  on  October  i,  1896,** 
and  it  must  be  reduced  in  proportion  to  the  legal  Hquida- 
tion  and  amounts  set  aside  for  that  purpose. 

ARTICLE  69. 

[Article  30,  law  of  August  10,  1893,  No.  449,  and  articles  28  and  29,  law  of 
August  8,  1898,  No.  486.] 

The  Bank  of  Italy  shall  institute  and  prosecute  at  its 
own  expense  all  actions  against  the  functionaries  and  ad- 
ministrators of  the  Banca  Romana,  as  such,  and  all  others 
who  may  be  found  in  any  way  responsible  for  the  losses  of 
the  said  Banca  Romana. 


0^  720,295.43  lire. 


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Law    Relating    to    Banks    of   Issue 

Title  VII. — Liquidation  of  Realty  Credits  of  Banks 

OF  Issue. 

Section  I. — Special  regulations  for  the  department  of  credit 
foncier  or  realty  credit  of  the  former  Banca  Nazionale  nel 
Regno  and  of  the  Bank  of  Sicily. 
ARTICLE  7°- 
[Article  i,  law  of  July  7,  1905,  No.  349.] 

The  realty  credit  departments  in  liquidation  of  the 
former  Banca  Nazionale  nel  Regno  and  of  the  Bank  of 
Sicily  are  empowered  to  convert  their  actual  loans,  not 
only  into  3.50  per  cent  realty  bonds,  but  also  by  the  issue 
of  new  realty  bonds  bearing  interest  at  3.75  or  3.25,  or 
3  per  cent  net,  with  the  retirement  of  those  actually  in 
circulation,  saving  the  obligation  on  the  borrowers  of  the 
Bank  of  Sicily  for  the  payment  of  contributions  fixed  by 
article  95. 

The  loans  converted  must  be  extinguished  in  a  period 
of  time  not  greater  than  fifty  years  from  the  day  of  the 
contract  or  the  act  of  conversion.  In  no  case  may  the 
ejxtinction  of  loans  be  protracted  beyond  the  year  i960. 

The  mortgages  already  registered  to  guarantee  the 
loans  preserve  their  validity  and  their  grade,  without  need 
of  a  special  reserve,  to  guarantee  the  capital,  the  interest, 
and  incidentals  of  the  loans  substituted,  including  the 
contributions,  for  which  see  article  95. 

The  realty  credit  administration  may  have  the  acts 
of  conversion  marked  on  the  margin  of  mortgage  records 
remaining  in  effect  to  guarantee  the  loans. 

For  the  conversion  of  loans  the  banks  will  endeavor,  so 
far  as  possible,  to  give  preference  to  those  guaranteed  by 

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National    Monetary     Commission 

farm  properties  and  to  those  for  small  sums,  always  with 
due  regard  to  the  order  of  applications. 

ARTICLE  71. 

[Article  2,  law  of  July  7,  1905,  No.  349.] 

Any  difference  between  the  redemption  at  par  of  the 
bonds  in  actual  circulation  and  the  seUing  price  of  the 
new  ones  shall  be  charged  to  the  borrower;  but,  by  a  pre- 
vious special  agreement  with  the  said  borrower,  it  may  be 
advanced  by  the  realty  credit  administration. 

For  such  advances  the  realty  credit  branches  are  au- 
thorized to  dispose  of  the  ordinary  reserve  fund  provided 
for  by  article  1 1  of  the  law  (text)  of  February  22,  1885,  No. 
2922.  The  realty  credit  of  the  former  Banca  Nazionale 
nel  Regno  may,  moreover,  dispose  of  the  special  reserve 
fund,  for  which  see  article  9  of  the  Appendix  A  to  the 
law  of  January  17,  1897,  No.  9,  modified  by  article  13 
of  the  law  of  July  7,  1905,  No.  349. 

ARTICLE  72. 
[Article  15,  law  of  July  7,  1905,  No.  349.] 

Independently  of  the  conversion  of  the  loans,  the  realty 
credit  departments  in  Hquidation  of  the  former  Banca 
Nazionale  nel  Regno  and  of  the  Bank  of  Sicily  may 
always  proceed  to  the  conversion  of  their  bonds,  as  per 
the  provision  of  article  38,  paragraphs  i,  3,  and  5,  of  the 
law  of  July  17,  1890,  No.  6955  (3d  ser.). 

The  conversion  may  be  effected  by  the  issuance  of  new 
realty  bonds  at  the  rate  of  3.75  and  3.50  per  cent  interest. 

The  reduction  of  the  interest  on  the  corresponding 
bonds  must  be  effected  within  a  period  not  longer  than 
one  year  from  the  date  of  the  conversion. 

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Notice  of  the  intended  conversion  must  be  published  in 
the  Official  Gazette  of  the  Kingdom  and  in  all  the  period- 
icals for  legal  announcements,  and  must  be  repeated  twice 
ten  days  apart. 

After  one  month  from  the  last  publication  the  bonds  in 
circulation  can  no  longer  be  presented  for  redemption,  and 
the  interest  will  be  calculated  at  the  rate  of  the  new 
bonds. 

While  the  conversion  is  being  effected,  all  the  provisions 
contained  in  the  present  text  in  favor  of  debtors  of  the 
realty  credit  administration  will  be  applicable  to  the  loans, 
including  the  right  to  extend  the  loans,  as  per  article  70. 

ARTICLE  73. 

[Article   6,  agreement  of  November   28,    1896,    before   cited.     Article   5, 
Appendix  C  to  law  of  January  17,  1897,  No.  9.] 

For  possible  monetary  needs,  the  department  of  realty 
credits  in  liquidation  of  the  former  Banca  Nazionale  nel 
Regno  and  that  of  the  Bank  of  Sicily  may  obtain,  respec- 
tively, from  the  Bank  of  Italy  and  from  the  Bank  of 
Sicily,  advances  on  deposits  of  government  bonds  or  bonds 
guaranteed  by  the  State,  according  to  article  29,  at  a 
favorable  rate  of  interest,  provided  it  be  not  less  than 
3.50  per  cent  per  annum. 

For  the  realty  credit  department  of  the  former  Banca 
Nazionale  nel  Regno,  the  said  advances  may  be  made 
also  on  bonds  of  the  dotation  fund,  disposable  by  the 
terms  of  article  76,  and  up  to  one-half  of  their  value. 


39781°— II 20  303 


National    Monetary     Commission 

ARTICLE  74. 

[Article   6,   agreement  of  November  28,    1896,   before  cited.     Article   5, 
Appendix  C  to  law  of  January  17,  1897,  No.  9.] 

The  banks  are  not  subject  to  tax  on  internal  advance 
operations  described  in  the  preceding  article. 

ARTICLE  75. 

[Article  7,  agreement  of  November  28,  1896,  before  cited.  Article  7, 
Appendix  C  to  law  of  January  17,  1897,  No.  9.  Article  12,  law  of  March 
3,  1898,  No.  47.] 

The  real  property  actually  in  the  possession  of  the  realty 
credit  branch  in  liquidation  of  the  former  Banca  Na- 
zionale  nel  Regno  and  that  of  the  Bank  of  Sicily,  or 
which  may  come  into  their  possession  by  the  terms  of 
article  104,  computed  at  balance  values,  shall  pass  respec- 
tively to  the  Bank  of  Italy  and  the  Bank  of  Sicily  with 
exemption  from  all  taxes. 

ARTICLE  76. 
[Article  8,  agreement  of  November  28,  1896,  before  cited.] 

The  dotation  fund  of  the  realty  credit  branch  in  liqui- 
dation of  the  former  Banca  Nazionale  nel  Regno  shall 
maintain  the  constant  proportion  of  one -tenth  of  the 
actual  circulation  of  bonds. 

The  Bank  of  Italy  shall  liquidate  on  account  of  the 
realty  credits  the  excess  of  the  dotation  fund. 

ARTICLE  77. 
[Article  3,  law  of  Januar>^  17,  1897,  No.  9.] 

If  the  provision  of  articles  73  and  76  shall  not  suffice  to 
guarantee  the  transactions  of  the  realty  credit  branch  in 
liquidation  of  the  former  Banca  Nazionale  nel  Regno  and 
of  that  of  the  Bank  of  Sicily,  the  deficits  shall  be  charged 


304 


Law    Relating    to    Banks    of   Issue 

to  the  balances  for  the  corresponding  fiscal  year  of  the 
respective  banks. 

ARTICLE  78. 

[Article  16,  law  of  July  7,  1905,  No.  349.] 

The  rules  for  carrying  out  the  provisions  of  the  law  of 
July  7,  1905,  No.  349,  relative  to  the  conversion  of  loans, 
are  fixed  by  appropriate  regulation.*^  For  the  application 
of  the  other  provisions  of  the  same  law  the  rules  in  force 
are  continued  in  the  regulation  of  February  i,  1891,  No.  66. 

Section  II. — Special  regulations  for  the  realty  credits  of  the 
Bank  of  Naples. 

ARTICLE  79. 
[Article  i,  law  of  July  7,  1905,  No.  350.] 

For  the  department  of  realty  credits  in  liquidation  of  the 
Bank  of  Naples  beginning  with  January  i ,  1906,  the  interest 
on  loans  is  reduced  to  3.75  per  cent,  except  for  the  contribu- 
tions as  per  article  95.  Power  is  granted  to  request  and 
to  allow  the  extension  of  the  amortization  for  a  period 
of  time  not  greater  than  fifty  years  from  the  date  of  new 
contracts,  with  the  benefits  and  rules  of  the  present  law, 
save  as  regards  the  obligations  of  borrowers  for  the  pay- 
ment of  contributions  as  per  article  95,  and  the  mainte- 
nance of  the  existing  law  relating  to  the  interest,  the 
amortization  of  the  realty  bonds,  and  their  guarantees. 

In  no  case  may  the  extinction  of  the  loans  be  extended 
beyond  i960. 

The  mortgages  already  registered  to  guarantee  the 
loans  shall  preserve  their  validity  and  their  grade,  without 

<i  Regulation  approved  by  royal  decree  of  November  19,  1905,  No.  547. 


305 


National    Monetary     Commission 

need  of  a  special  reserve,  to  guarantee  the  capital,  the 
interest,  and  incidentals  of  the  loans  substituted,  includ- 
ing the  contributions,  for  which  see  article  95. 

The  realty  credit  department  is  entitled  to  mark  the 
acts  of  conversion  on  the  margin  of  the  mortgage  records 
remaining  in  effect  to  guarantee  the  loans. 

ARTICLE  80. 

[Article  i,  Appendix  B  to  law  of  January  17,  1897,  No.  9.     Law  of  July  2, 

1908,  No.  320.] 

Revoking  article  6,  paragraph  5,  of  the  law  of  February 
22,  1885,  No.  2922,  bonds  issued  by  the  credit  foncier  of 
the  Bank  of  Naples,  beginning  January  i,  1897,  shall  bear 
interest  annually  at  3.50  per  cent,  exempt  from  any  im- 
post or  tax,  present  or  future. 

The  old  bonds  of  the  realty  credit  department  of  the 
Bank  of  Naples,  bearing  gross  interest  at  5  per  cent,  shall 
be  recalled  and  cancelled,  and  in  exchange  for  them  shall 
be  issued  new  bonds  of  equal  nominal  value,  bearing  in- 
terest annually  at  3.50  per  cent,  exempt  from  all  imposts 
and  taxes,  present  and  future,  payable  semi-annually  on 
the  ist  of  April  and  on  the  ist  of  October  of  each  year. 

The  old  bonds  not  presented  in  exchange  for  others  of 
the  new  issue  before  July  31,  1910,  shall  be  considered  as 
outlawed,  and  their  value  shall  go  to  the  profit  of  the  credit 
foncier. 

The  interest  and  amortization  of  the  new  bonds  are 
guaranteed  by  the  State. 


306 


Law    Relating    to    Banks    of   Issue 

ARTICLE  8i. 

[Article  2,  Appendix  B  to  law  of  January  17,  1897,  No.  9.     Article  i,  law  of 
July  7,  1905,  No.  350.] 

The  debt  represented  by  the  bonds  of  the  realty  credit 
department  of  the  bank,  in  circulation  on  January  i,  1897, 
shall  be  redeemed  within  the  period  of  fifty  years  begin- 
ning from  the  same  date,  by  means  of  a  constant  annuity, 
including  the  net  interest  at  3.50  per  cent,  payable  in 
two  semiannual  installments  of  1.75  lire  each,  and  of  the 
proportion  of  the  amortization.^ 

The  redemption  of  the  bonds  shall  be  by  semi-annual 
drawings  on  February  i  and  August  i  of  each  year.  If 
the  value  of  the  bonds  is  below  par,  the  bank  has  power 
to  substitute,  for  one-half  of  the  redemption  by  lot,  bonds 
bought  direct  on  the  market. 

The  loans  made  by  the  bank  must  be  reduced  according 
to  the  conditions  under  which  they  were  granted,  with  the 
modifications  effected  by  article  79  of  the  present  text. 

ARTICLE  82. 
[Article  3,  Appendix  B  to  law  of  January  17,  1897,  No.  9.] 

Revoking  article  8,  paragraph  9,  of  the  law  (Text)  of 
February  22,  1885,  No.  2922,  governing  realty  credits, 
the  bonds  of  the  realty  credit  department  of  the  Bank  of 
Naples  are  accepted  for  the  redemption  of  loans  at  a  valua- 
tion determined  for  each  quarter,  based  upon  the  average 
value  of  the  bonds  for  the  preceding  quarter  in  the  prinicpal 
exchanges  of  the  Kingdom,  increased  by  50  lire.  If  the 
average  value  determined  and  applicable  shall  exceed  450 
lire,  the  bonds  are  accepted  at  par  value. 

a  The  table  of  amortization  has  been  approved  by  ministerial  decree 
of  Apr.  30,  1898,  published  in  the  Official  Gazette  of  July  6,  1898,  No.  150. 


307 


National    Monetary     Commission 

ARTICLE  83. 
[Article  14  of  law  of  July  7,  1905,  No.  350.J 

All  bonds  of  the  department  of  realty  credits  in  liquida- 
tion of  the  Bank  of  Naples  which  originated  either  from 
investments  on  capital  account  or  from  investments  of 
profits  from  annual  savings  in  management  constitute  a 
fund  the  interest  from  which  forms  part  of  the  ordinary 
balance,  and  is  at  the  free  disposal  of  the  department  of 
realty  credits. 

ARTICLE  84 
[Article  15,  law  of  July  7,  1905,  No.  350.] 

All  amounts  obtained  on  capital  account  during  every 
six  months  over  and  above  the  obligatory  half-yearly 
amortizations  of  bonds,  and  all  those  resulting  from  the 
savings  in  management  at  the  end  of  each  fiscal  year, 
must  be  invested  in  government  bonds  or  bonds  guaran- 
teed by  the  State  to  be  included  in  the  said  fund,  as  per 
preceding  article,  on  capital  account  and  on  account  of 
annual  savings  in  management,  respectively. 

ARTICLE  85. 
[Article  16,  law  of  July  7,  1905,  No.  350.] 

When  the  investment  and  reinvestment  in  bonds  pre- 
scribed in  the  preceding  article,  in  view  of  their  circula- 
tion, their  net  return,  and  the  annual  burdens  arising 
from  the  realty  bonds  in  circulation,  result  in  a  loss  to  the 
credit  foncier,  they  shall  be  suspended,  with  the  previous 
authorization  of  the  minister  of  the  treasury,  and  the 
deficit  shall  be  made  up  by  the  retirement  from  the 
circulation  and  the  cancellation  of  the  said  realty  bonds. 

The  withdrawal  of  the  realty  bonds  from  circulation 
shall  be  effected  by  means  of  direct  purchase  if  quoted 

308 


Law    Relating    to    Banks    of   Issue 

below  par,  or  by  redemption  of  same  by  lot,  in  addition 

to  the  half-yearly  obligatory  amortization,  if  quoted  at 

or  above  par. 

ARTICLE  86. 

[Article  17,  law  of  July  7,  1905,  No.  350.] 

When  it  appears  that  even  in  the  case  of  bonds  already 
forming  part  of  the  said  fund  (see  article  83),  in  view  of 
the  burdens  arising  from  the  realty  bonds  in  circulation, 
it  would  prove  profitable  for  the  realty  credit  depart- 
ment to  anticipate  their  redemption  by  proportionately 
hastening  the  withdrawal  of  the  realty  bonds,  such  bonds 
may,  with  authorization  of  the  minister  of  the  treasury, 
be  gradually  redeemed,  and  their  income  be  applied 
either  to  increase  the  direct  purchase  of  realty  bonds  or 
to  increase  the  drawings,  as  per  the  preceding  article. 

ARTICLE  87. 
[Article  12,  law  of  July  7,  1905,  No.  350.] 

The  Bank  of  Naples  shall  provide  for  the  increment  of 
the  fund  of  15,000,000  lire  (for  which  see  article  12  of 
the  law  of  July  7,  1905,  No.  350)  by  semi-annual  and 
quarterly  reinvestments  at  compound  interest,  in  order 
to  reimburse  itself  for  the  amount  of  the  account  cur- 
rent of  its  realty  credit  department,  closed  December  31, 

1896. 

ARTICLE  88. 

[Article  8,  law  of  January  17,  1897,  No.  9.     Article  13,  law  of  July  7,  1905, 

No.  350.] 

The  tax  on  movable  property  and  the  circulation  tax 
on  bonds  of  the  credit  foncier  in  liquidation  of  the  Bank 
of  Naples  are,  respectively,- 15  lire  per  centum  and  1.80 


309 


National    Monetary     Commission 

lire  per  thousand,  and  are  subscribed  by  the  State  to  the 
said  realty  credit  department.  To  the  latter  will  be 
transferred  also  all  such  amounts  as  are  included  in  the 
annual  dues  of  the  borrowers  for  tax  subscriptions. 

ARTICLE  89. 

[Article  5,  Appendix  b  to  law  of  January  17,  1897,  No.  9.] 

The  Bank  of  Naples  acts  as  cashier  for  its  realty  credit 
department.  Therefore,  in  case  of  need,  the  bank  may 
make  advances  on  Italian  Government  bonds  or  bonds 
guaranteed  by  the  State  in  possession  of  the  realty  credit 
department,  at  a  favorable  rate  of  interest,  provided  it  be 
not  less  than  3.50  per  cent  per  annum.  For  such  internal 
operations  of  advances  the  bank  is  not  liable  to  a  tax. 

ARTICLE  90. 
[Article  18,  law  of  July  7,  1905,  No.  350.] 

Any  annual  deficits  of  the  liquidation  shall  be  charged 
to  the  realt}^  credit  department. 

When  all  the  assets  in  bonds,  immovable  property, 
and  ordinary  credits  of  the  realty  credit  department  have 
been  exhausted,  the  said  deficits  shall  be  charged  to  the 
balance  of  the  corresponding  fiscal  year  of  the  bank. 

The  assets,  of  any  kind,  of  the  realty  credit  department 
which  may  remain  available  after  the  extinction  of  the 
realty  bonds  shall  become  the  property  of  the  bank. 

ARTICLE  91. 
[Article  20,  law  of  July  7,  1905,  No.  350.] 

The  rules  for  the  execution  of  the  law  of  July  7,  1905, 
No.  350,  are  fixed  by  regulation  approved  by  royal  decree." 

a  Royal  decree  of  Nov.  19,  1905,  No.  553. 


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Law    Relating    to    Banks    of   Issue 

Section    III. — Regulations    common    to    the    realty  credit 
administrations  of  the  three  hanks. 

ARTICLE  92. 

[Article  3,  law  of  July  7,  1905,  No.  349.     Article  2,  law  of  July  7,  1905, 

No.  350.] 

Neither  unpaid  semi-annual  dues  nor  interest  on  de- 
ferred payments,  nor  legal  and  other  incidental  expenses, 
shall  constitute  an  obstacle  to  the  conversion  of  actual 
loans  in  accordance  with  the  provisions  contained  in  the 
two  preceding  sections. 

The  realty  credit  administrations  shall  take  measures 
to  systematize  and  secure  payment  of  such  debt  and  of 
the  sum  advanced  according  to  article  7 1 ,  and  they  are 
further  authorized  to  require  second  mortgages. 

The  second  mortgage,  agreed  upon  by  the  borrower, 

shall  rank  immediately  after  the  first   mortgage,  or  at 

least  in  a  way  satisfactory  in  the  judgment  of  the  realty 

credit  department. 

ARTICLE  93. 

[Article  4,  law  of  July  7,   1905,  No.  349.     Article  3,  law  of  July  7,  1905, 

No.  350.] 

The  amount  of  the  debt  consisting  of  the  unpaid  semi- 
annual dues,  of  the  interest  on  deferred  payments,  of 
legal  expenses  and  other  incidentals,  of  sums  advanced  in 
conformity  with  article  71,  and  of  taxes  on  movable 
property  on  account  of  the  realty  credit  department  of 
the  Bank  of  Naples,  shall  constitute  a  separate  capital 
sum  which  must  be  extinguished  in  a  period  of  time  not 
exceeding  that  of  the  amortization  of  the  converted 
loan  added  to  the  corresponding  tax  on  movable  property. 


311 


National     Monetary     Commission 

ARTICLE  94. 

[Article  5,  law  of  July  7,   1905,  No.  349.     Article  4,  law  of  July  7,  1905, 

No.  350.] 

No  tax  will  be  due  to  the  treasury  for  acts  and  con- 
tracts of  conversion  of  actual  loans,  for  requisite  mortgage 
entries  for  acts  and  contracts  in  systematization  of  the 
loan,  or  for  the  second  mortgages  mentioned  in  the  two 
foregoing  articles. 

The  realty  credit  departments  of  the  banks  of  issue 
shall  in  no  case  partake  of  the  compensations  mentioned 
in  article  3  of  the  law  of  July  4,  1896,  No.  183,"  arising 
from  the  conversion  of  the  old  loan. 

Likewise,  in  application  of  article  3,  last  paragraph, 
of  the  same  law  of  June  4,  1896,  no  tax  shall  be  due  to 
the  treasury. 

ARTICLE  95. 

[Article  6,  law  of  July  7,  1905,  No.  349.     Article  5,  law  of  July  7,  1905, 

No.  350.] 

For  the  loans  which  shall  be  converted  under  the 
terms  of  the  two  preceding  sections  the  borrowers  shall 
pay  to  the  realty  credit  department  for  dues  to  the  state 
treasury  (except  in  the  case  of  the  realty  credit  depart- 
ment of  the  Bank  of  Naples,  for  which  see  provision 
of  article  88)  certain  annual  contributions  as  imposts  on 
movable  property,  as  subscription  to  taxes  of  whatever 
kind  which  may  be  payable  to  the  finances  of  the  State 
for  the  contract  of  the  loan,  for  the  issue  and  circulation 
of  the  mortgage  bonds,  and  for  all  the  acts  and  formali- 
ties mentioned  in  article  i  of  the  law  of  June  4,  1896, 
No.  183. 

o  Modified  from  article  4,  law  of  Dec.  22,  1905,  No,  592. 


312 


Law    Relating    to    Banks     of    Issue 

The  contribution  to  the  impost  on  movable  property 
shall  consist  of  an  assessment  of  lo  lire  on  every  loo 
lire  interest  on  loans  not  exceeding  10,000  Hre,  and  12 
lire  in  the  same  proportion  on  loans  greater  than  such 
sum. 

The  subscription  to  the  taxes  as  above  shall  be  8 
centesimi  per  100  lire  of  loans  not  exceeding  10,000 
lire  and  10  centesimi  per  100  lire  for  others. 

The  second  of  these  contributions  shall  be  turned  over 
by  the  realty  credit  administrations  of  the  former  Banca 
Nazionale  nel  Regno  and  the  Bank  of  Sicily  to  the  proper 
registration  offices,  and  the  other  to  the  state  treasury, 
according  to  article  22  of  the  abovementioned  law. 

When,  by  amortization  or  advance  payments,  the 
loan  shall  be  reduced  to  one-half,  the  rate  of  the  taxes 
shall  be  successively  reduced  to  one-half  and  calculated 
on  the  capital  amount  still  due. 

ARTICLE  96. 

[Article  7.  law  of  July  7,  1905,  No.  349-     Article  6,  law  of  July  7,  1905, 

No.  350.] 

Modifying  article  3  (second  paragraph)  of  the  law  of 
June  4,  1896,  No.  183,"  in  the  case  of  advance  payment 
in  whole  or  in  part  of  the  debt  arising  out  of  the  loan, 
the  realty  credit  branches  of  the  banks  of  issue  shall  be 
entitled,  under  special  uniform  conditions,  to  collect  a 
commission  fee  up  to  5  per  cent  of  the  sum  refunded  before 
the  date  fixed  by  the  new  contract. 

a  Modified  by  article  4  of  the  law  of  Dec.  22,  1905,  No.  592. 


313 


National     Monetary     Commission 

ARTICLE  97. 

[Article  8,  law  of  July  7,  1905,  No.  349.     Article  7,  law  of  July  7,  1905, 

No.  350.] 

For  loans  to  be  converted  not  exceeding  20,000  lire,  the 
subscription  under  article  95  of  the  present  text  shall  cover 
all  the  stamp  taxes  due  for  the  certificates  of  the  entry 
and  transcription  of  mortgages  and  all  such  payments, 
and  in  general  for  all  the  acts  and  documents  which, 
upon  direct  requisition  of  the  realty  credit  branches,  may, 
in  accordance  with  the  regulations  and  precautions  estab- 
lished by  statute,  be  issued  by  the  proper  public  officers 
or  notaries  with  the  object  of  legalizing  the  demands  for 
the  conversion  of  the  said  loans. 

ARTICLE  98. 

[Article  9,  law  of  July  7,  1905,  No.  349.     Article  8,  law  of  July  7,  1905, 

No.  350.] 

The  use  of  the  50-centesimi  stamp  for  procedures  under 
article  21  of  the  law  of  June  4,  1896,  No.  183,  is  hereby 
further  extended  to  all  proceedings  instituted  by  the 
realty  credit  branches,  including  incidental  judgments, 
even  when  they  relate  to  questions  of  merit,  in  all  the 
degrees  of  jurisdiction,  and  to  judgments  both  of  appor- 
tionment and  liquidation  and  all  incidental  proceedings, 
as  also  to  proceedings  for  taking  possession  of  real  prop- 
erty adjudged  to  the  said  realty  credit  branches  following 
sale  at  auction  instituted  either  by  the  realty  credit 
branches  or  others. 


314 


Law    Relating    to    Banks     of    Issue 

ARTICLE  99. 

[Article  10,  law  of  July  7,  1905,  No.  349.     Article  9,  law  of  July  7,  1905, 

No.  350.] 

A  reduction  of  one-half  is  hereby  made  in  the  fees 
fixed  by  the  notary  tariff  now  in  force  for  the  stipula- 
tion of  contracts  of  conversion  of  loans,  as  per  the  pro- 
visions of  the  following  sections. 

ARTICLE  100. 

[Article  11,  law  of  July  7,  1905,  No.  349.     Article  10,  law  of  July  7,  1905, 

No.  350.] 

Representatives  of   the  realty   credit   branches    of  the 

banks  of  issue,  upon  the  presentation  of  tax  valuation 

records  referring  to  specified  properties,  may  search  the 

tax  registers  and  obtain,  without  charge,  such  memoranda 

and  notes  as  are  necessary  for  performing  their  appointed 

duties. 

ARTICLE  loi. 

[Article  12,  law  of  July  7,  1905,  No.  349.     Article  10,  law  of  July  7,  1905, 

No.  350.] 

The  reduction  under  article  31   of  the  law  of  June  4, 

1896,  No.  183,  to  one-fourth  of  the  registration  taxes  for 

acts  of  transfer  and  conveyance  therein  specified,  arising 

from  loans  arranged  up  to  December  31,  1895,  shall  be 

extended,    in    favor  of  the    realty    credit     branches,    to 

December  31,  1916. 

ARTICLE  102. 

[Article  2,  Appendix  S  to  law  of  August  8,  1895,  No.  486.] 

The  realty  credit  branches  of  the  banks  of  issue  have 
the  right  to  surrender  their  own  credits  to  other  institu- 
tions of  realty  credit,  ordinary  or  private,  on  such  con- 
ditions as  they  may  deem  convenient,  wholly  extinguishing 
their  respective  credit,  as  the  law  provides. 


31S 


National     Monetary     Commission 

ARTICLE  103. 
[Article  3,  Appendix  S  to  law  of  August  8,  1895,  No.  486.] 

No  payment  or  compensation  is  due  to  the  treasury  in 
case  of  anticipated  redemption  of  a  realty  loan  made 
through  the  contraction  of  a  new  mortgage  loan  with 
other  institutions,  provided  that  the  amount  and  the  time 
of  the  new  loan  be  not  less  than  the  amount  still  due  and 
the  time  still  to  run. 

ARTICLE  104. 
[Article  4,  Appendix  S  to  the  law  of  August  8,  1895,  No.  486.] 

When  the  realty  credit  department  of  a  bank  of  issue 
becomes  the  receiver  of  mortgaged  real  property,  the 
redemption  of  the  remaining  debt  may  be  deferred  with 
the  proviso  that  the  half-yearly  amortization  be  continued 
for  the  time  of  the  original  loan. 

In  case  of  sale,  the  price  must  be  invested  in  the  extinc- 
tion of  the  remaining  debt  and  the  redemption  of  the  cor- 
responding number  of  realty  bonds.  When  such  price  is 
not  sufficient,  the  institution  must  supply  the  difference. 
The  provisions  of  this  present  article  are  not  applicable  to 
the  realty  credit  department  of  the  Bank  of  Naples,  the 
realty-bond  business  of  which  is  regulated  by  articles  80, 
81,  82,  85,  and  86. 

ARTICLE  105. 
[Article  5,  Appendix  S  to  law  of  August  8,  1895,  No.  486.] 

The  power  granted  to  the  receiver  by  article  36  of  the 
law  of  July  17,  1S90,  No.  6955,  may  be  also  exercised  by 
the  buyer  of  immovable  property  under  a  judgment 
granted  to  the  realty  credit  department  of  a  bank  of  issue. 


316 


Law    Relating    to    Banks    of    Issue 

The  term  of  fifteen  days,  as  specified  in  said  article  36, 
is  extended  to  thirty  days  in  favor  of  the  receiver  who 
intends  to  profit  by  the  realty  loan  granted  to  the  dis- 
possessed debtor. 

ARTICLE  106. 

[Article  6,  Appendix  S  to  the  law  of  August  8,  1895,  No.  486. J 

After  the  third  attempt  at  sale  by  auction  the  realty 
credit  branches  of  the  banks  of  issue  may  request  from 
the  Civil  Tribunal  the  authority  to  sell  by  private  agree- 
ment properties  subject  to  expropriation  and  to  foreclosure 
for  a  sum  not  less  than  that  bid  at  the  last  auction. 

This  provision  can  not  be  impugned  except  for  nullity 
of  form,  and  such  impugnation  shall  not  suspend  the  sale. 

The  price  shall  be  paid  to  the  bank,  which  shall  deduct 
what  is  due  to  it,  in  conformity  with  article  23  (F)  of 
the  text  of  the  law  governing  realty  credit,  approved  by 
royal  decree  of  February  22,  1895,  No.  2922,  holding  the 
remainder  in  trust  to  await  apportionment. 

ARTICLE  107. 
[Article  7,  Appendix  S  to  the  law  of  August  8,  1895,  No.  486.] 

For  the  appointment,  the  recall,  and  the  surrogation  of 
the  sequestrator  (for  which  see  (B),  article  23,  of  the  said 
text  of  the  law  governing  realty  credits) ,  and  for  the  bond 
which  may  be  required  from  him,  the  president  of  the 
tribunal  must  conform  to  the  proposals  of  the  realty 
credit  branches  of  the  banks  of  issue. 


317 


National    Monetary     Commission 

Title  VIII. — Supervision  of  Circueation  and  Banks 

OF  Issue. 

Section  I. — General  regulations. 

article  io8. 

[Article  15,  law  of  August  10,  1893,  No.  449.  Articles  26  and  27,  law  of 
August  8,  1895,  No.  486.  Article  i,  Appendix  P  to  the  law  of  August 
8,  1895,  No.  486.     Article  12,  Appendix  T  to  the  aforesaid  law.j 

The  supervision  of  banks  of  issue,  realty  credit  branches, 
the  saving  branch  of  the  Bank  of  Naples,  and  the  liquida- 
tion of  the  Roman  Bank  is  vested  in  the  treasury. 

ARTICLE   109. 
[Article  4,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  necessary  expenses  of  the  supervision  of  the  banks 
of  issue  shall  be  borne  by  the  banks  themselves. 

Section  II. — Permanent  commission. 

ARTICLE  no. 

[Article  3,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.  Law  of 
December  31,  1907,  No.  804,  Appendix  A.  Law  of  June  30,  1908,  No. 
304] 

A  permanent  commission  is  appointed  for  the  supervi- 
sion of  the  banks  of  issue  and  of  the  state  and  banking 
circulation,  under  the  presidency  of  the  minister  of  the 
treasury. 

The  said  commission  is  composed  of  four  senators  and 
four  deputies  elected  by  the  respective  chambers,  with 
the  proviso  that  in  case  of  the  dissolution  of  the  Chamber 
of  Deputies,  the  deputies  shall  remain  in  office  until  a  new 
election;  also  of  five  members  appointed  by  royal  decree. 


318 


Law    Relating    to    Banks    of    Issue 

upon  the  recommendation  of  the  minister  of  the  treasury 
and  with  consent  of  the  council  of  ministers. 

The  members  appointed  by  the  Government  are  a 
president  or  councillor  of  the  state  council,  a  president 
or  councillor  of  the  court  of  accounts,  the  director-general 
of  the  treasury,  the  inspector-general  for  the  supervision 
of  the  banks  of  issue,  the  treasury  services,  and  the  board 
of  sanitation  of  the  city  of  Naples,  the  director-general  of 
credit  and  estimate  in  the  ministry  of  agriculture,  indus- 
try, and  commerce. 

The  commission  shall  elect  a  vice-president  from  its  own 

number. 

ARTICLE  III. 

[Article  26,  law  of  April  7,  1881,  No.  133,     Article  27,  law  of  August  8, 
1895,  No.  486.     Article  5,  Appendix  P  to  the  same  law.] 

The  permanent  commission  for  the  supervision  of  cir- 
culation and  the  banks  of  issue  shall,  upon  the  request  of 
the  minister  of  the  treasury,  give  its  advice: 

1 .  On  all  provisions  and  regulations  concerning  methods 
and  guarantees: 

(a)  For  exchange  operations,  withdrawal  and  cancel- 
lation of  government  notes,  and  the  substitution  of  new 
notes,  which  must  be  passed  upon  by  the  court  of  accounts. 

(6)  For  the  custody  of  state  notes  intended  for  the 
working  fund. 

(c)  For  the  acceptance  of  bank  notes  by  the  state  treas- 
ury when  they  shall  have  ceased  to  have  legal  circulation, 
as  per  article  lo. 

2.  On  the  rules  to  be  established  in  regard  to  the  ex- 
change of  bills  when  the  new  regulations  contained  in 
article  8  shall  have  been  issued. 

39781°— II— 21  319 


National     Monetary     Commission 

3.  On  the  form  of  the  decennial  reports  of  the  condition 
of  each  bank,  which  shall  show  separately  the  various 
kinds  of  assets  and  liabilities  which  form  the  free  capital 
of  the  concern. 

4.  On  the  special  agreement  to  be  entered  into  among 
the  banks,  subject  to  the  approval  of  the  Government,  for 
the  getting  rid  of  notes  of  other  institutions. 

Moreover,  the  commission  may  be  invited  to  give  its 
advice  on  all  measures  regulating  the  manufacture,  sup- 
ply, custody,  withdrawal,  and  cancellation  of  bank  notes, 
and  determining  the  quantity  and  use  of  notes  in  the 
working  fund  as  per  article  4. 

ARTICLE  112. 

[Article  6,  Appendix  P  to  the  law  of  August  8,  1895,  ^o-  4^6.     Article  4, 
law  of  February  i,  1901,  No.  24.] 

The  permanent  commission  shall,  upon  the  request  of 
the  minister  of  the  treasury,  extend  its  examination  to 
include  the  following: 

(a)  The  proposed  amendments  of  the  charter  of  the 
Bank  of  Italy  within  the  limits  of  the  laws. 

(6)  Amendments  that  may  be  deemed  necessary  to 
the  statutes  and  by-laws  of  the  banks  of  Naples  and 
Sicily. 

(c)  And,  in  general,  all  the  provisions  necessary  for  the 
execution  of  the  present  law. 

The  report,  as  per  article  44  of  the  present  text,  shall 
be  referred  to  the  commission  for  its  opinion. 


320 


Law    R e latin g    to    Banks     of   Issue 

Section  III. — Permanent  supervision. 

ARTICLE   113. 

[Law  of  December  31,  1907,  No.  804.] 

The  permanent  supervision  of  the  banks  of  issue  and 
their  branch  managements  is  undertaken  by  the  minister 
of  the  treasury  through  the  inspectorate-general. 

ARTICLE  114. 
[Article  8,  Appendix  P  to  the  law  of  August  8,  1895,  ^o-  486.] 

The  board  of  directors  of  the  Bank  of  Italy  shall,  from 
time  to  time,  and  with  sufficient  notice,  advise  the  min- 
ister of  the  treasury  of  the  date  and  hour  fixed  for  the 
general  meetings  of  shareholders,  for  the  meetings  of  the 
superior  council,  and  of  the  liquidation  committee  of  the 
Banca  Romana,  inclosing  a  programme  of  the  subjects  to 
be  discussed  at  such  meetings. 

Similar  communications  must  be  made  by  the  banks 
of  Naples  and  Sicily  in  regard  to  the  meetings  of  the 
general  council  and  central  council  of  administration. 

At  the  sessions  of  the  above-mentioned  councils  and 
commissions  there  shall  be  present  a  government  in- 
spector or,  in  his  stead,  an  official  delegated  by  the  min- 
ister of  the  treasury  with  power  to  suspend  the  execution 
of  decisions  that  may  in  his  opinion  be  contrary  to  the 
laws,  regulations,  and  statutes. 

Immediate  notice  of  such  suspensions  must  be  given 
to  the  minister  of  the  treasury,  who  will  either  approve 
or  revoke  the  same,  giving  due  notice  to  the  banks  in- 
terested, within  five  days  from  the  date  of  suspension. 
If  the  suspension  meets  with  the  minister's  approval,  he 
shall  have  the  power  to  annul  the  decision  when  the  same 


321 


National    Monetary     Commission 

is  recognized  as  contrary  to  the  laws,  regulations,  and 
statutes. 

ARTICLE  115. 

[Article  9,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

When  an  inspector  or  a  delegate,  as  in  the  preceding 
article,  shall  have  failed  to  suspend  a  decision  which  the 
minister  of  the  treasury  deems  to  be  contrary  to  the  laws, 
regulations,  and  statutes,  the  minister  may  directly  sus- 
pend the  same  within  five  days  from  the  date  of  the 
meeting,  basing  such  action  upon  the  report  communi- 
cated by  the  inspector  and  giving  notice  thereof  to  the 
bank  interested. 

After  the  suspension  the  minister  shall  have  the  power 
to  annul  the  said  decision  if  the  same  be  found  contrary 
to  the  laws,  regulations,  and  statutes. 

ARTICLE  116. 
[Article  10,  Appendix  P  to  the  law  of  August  8,  1895,  No.  586.] 

The  inspector  or  delegate  (see  the  foregoing  article) 
must  transmit,  within  two  days,  to  the  minister  of  the 
treasury  a  report  on  the  matters  discussed  and  on  the 
decisions  taken  at  the  meeting  at  which  he  has  been 
present. 

Within  the  same  time  the  board  of  directors  of  the 
bank  shall  transmit  an  abstract  of  the  matters  discussed, 
as  well  as  a  copy  of  the  minutes  of  the  meeting  duly 
verified. 

ARTICLE  117. 

[Article  11,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  inspectorate-general  shall  examine  the  annual 
balances  of  the  banks  of  issue  and,  where  deemed  nec- 
essary, verify  the  correspondence  of  said  balances  with 
the  records  of  the  institutions. 


322 


Law    Relating    to    Banks     of    Issue 

For  this  purpose  the  banks  must  promptly  transmit 
to  the  inspectorate  their  balances  and  profit  and  loss 
accounts,  and  they  must  furnish  all  such  information  as 
may  be  required  of  them  except  in  the  case  of  the  Bank 
of  Naples  and  its  realty  credit  department  as  per  article 

135- 

ARTICLE  ii8. 

[Article  12,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

Reports  on  the  operations  of  each  bank,  compiled  in 
accordance  with  the  forms  approved  by  special  royal 
decree,  shall  be  handed  in  on  the  loth,  20th,  and  the 
last  day  of  each  month. 

They  shall  be  transmitted  to  the  treasury  at  the  latest 
within  eight  days  after  date  and  must  be  signed  by  the 
director-general  and  by  the  chief  of  the  general  account- 
ing division  of  the  bank. 

The  banks  are  obliged  to  furnish  to  the  inspectorate- 
general  all  required  information  in  connection  with  the 
reports  received. 

The  inspectorate  shall  verify  from  time  to  time  the 
correspondence  between  the  reports  and  the  records  of 
the  bank. 

The  condition  of  each  bank  shall  be  published  by  the 
inspectorate-general  in  the  Official  Gazette  of  the  Kingdom. 

ARTICLE  119. 
[Article  13,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  bills  of  exchange  on  foreign  countries,  included  in 
the  reserve  of  the  banks  of  issue,  in  conformity  with 
article  11,  must  be  verified  at  short  intervals  by  the 
inspectorate-general    in    order    to    ascertain    their    value 


323 


National     Monetary     Commission 

and  to  make  sure  that  the  requirements  as  set  forth  in 
the  royal  decree  of  October  lo,  1895,  No.  627,  have  been 
complied  with. 

The  said  decree  establishes  the  rules  for  the  balancing 
of  deposits  in  accounts  current  abroad,  reckoned  as 
reserve,  as  per  the  terms  of  said  article  11. 

ARTICLE  120. 
[Article  14,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  inspectorate -general  shall,  at  short  intervals,  see 
that  the  regulations  regarding  the  movement  of  the  bills 
are  strictly  observed. 

The  said  inspectorate  shall  make  not  less  than  twice 
each  year,  and  even  in  the  interval  between  two  decades, 
a  complete  verification,  without  notice  and  simultaneously, 
of  the  cash  on  hand  in  all  the  branches,  subbranches, 
and  agencies  of  the  bank. 

Such  proceedings  can  not,  for  any  cause,  be  postponed 
to  any  other  day  than  that  fixed  beforehand.  If  more 
than  one  day  is  required  for  their  completion  they  shall  be 
continued  without  interruption  taking  such  precautions 
as  may  be  deemed  necessary  for  their  satisfactory  per- 
formance. 

The  reports  on  these  verifications,  with  a  recapitulation, 
shall  be  transmitted  promptly  to  the  inspectorate-general 
for  possible  remarks  to  the  banks. 

For  the  purpose  of  these  verifications  the  minister  of 
the  treasury  may  secure  information,  besides  that  fur- 
nished by  the  intendants  of  finance,  from  all  the  members 
of  their  staff. 


32^ 


Law    Relating    to    Banks     of    Issue 

ARTICLE  121. 
[Article  15,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  inspectorate-general  must  make  certain  special 
verifications  in  the  branches  and  sub-branches  of  the 
banks,  according  to  such  rules  as  shall  be  ordained  by 
ministerial  decree. 

The  purpose  of  such  verifications  shall  be  principally  to 
ascertain  the  nature  (i)  of  the  metallic  and  paper  currency; 
(2)  of  public  effects  on  deposit,  being  the  property  of  third 
parties,  or  representing  the  direct  investments  of  the 
banks;  (3)  of  the  portfolios;  and  further  to  see  that  all 
the  operations  are  conducted  in  accordance  with  the  law. 

The  directors  of  the  above-mentioned  branches  and  sub- 
branches  must  submit  to  the  inspectors  the  registers  and 
documents  necessary  for  their  discharge  of  the  duties 
with  which  they  are  intrusted. 

ARTICLE  122. 
[Article  16,  Appendix  P  to  law  of  August  8,  1895..  No.  486.] 

Besides  the  powers  conferred  by  the  foregoing  articles, 
the  inspectorate-general  possesses  also  all  those  specified 
in  the  special  statute  as  per  article  4. 

Section  IV. — Periodical  and  extraordinary  inspections. 

ARTICLE  123. 

[Article  15,  law  of  August  10,  1893,  No.  449.     Article  17,  Appendix  P  to  the 
law  of  August  8,  1895,  No.  486.     Article  36,  same  law.] 

At  the  end  of  every  three  years  the  minister  of  treasury 
shall  order  an  extraordinary  inspection  of  the  banks  of 
issue,  through  state  officials  who  have  not  participated  in 
previous  inspections  of  the  respective  banks. 


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National     Monetary     Commission 

The  reports  of  such  inspections  shall  be  presented  to 
Parliament  within  three  months. 

ARTICLE  124. 

[.\rticle  18,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

These  inspections  have  as  their  object: 

(a)  To  ascertain  the  quantity  and  quaHty  of  metallic 
currency,  of  bills  of  exchange,  and  of  accounts  current  on 
foreign  countries,  included  in  reserve  according  to  the  law. 

ih)  To  verify  the  actual  quantity  of  notes  in  circulation 
and  of  those  on  hand,  according  to  their  different  classes, 
taking  separate  account  of  notes  serving  as  working  fund 
and  those  withdrawn  as  worn  out,  and  canceled  but  not 
yet  destroyed,  in  conformity  with  the  regulations  in  the 
before-mentioned  article  4. 

(c)  To  ascertain  whether,  in  the  exchange  of  notes  with 
the  public  and  among  the  banks  themselves,  the  latter  have 
followed  the  rules  estabhshed  by  the  laws  and  regulations 
in  force. 

{d)  To  certify  the  exact  correspondence  of  the  records 
contained  in  the  books  of  the  banks  with  the  reports  and 
statements  transmitted  to  the  Government. 

{e)  To  verify  the  nature  of  the  operations  of  the  banks 
as  regards  the  provisions  contained  in  Title  IV. 

(/)  To  certify  the  observance,  on  the  part  of  the  Bank 
of  Italy,  of  the  prescriptions  of  the  Commercial  Code,  and 
particularly  of  those  contained  in  articles  146  and  181, 
and  the  actual  existence  of  the  respective  free  capital  of 
the  banks  of  Naples  and  Sicily. 

{g)  To  ascertain  whether  within  the  two  years,  as  pre- 
scribed by  article  60,  the  bonds,  securities,  and  various 


326 


Law    Relating    to    Banks     of    Issue 

movable  properties  specified  therein  which  became  prop- 
erty of  the  banks  after  August  25,  1893,'^  as  a  result  of 
their  credits  have  been  liquidated;  and  whether  within 
three  years,  as  specified  by  the  same  article,  the  liquida- 
tion has  been  effected  of  the  operations  relative  to  over- 
due credits  guaranteed  by  mortgage  or  by  transfer  of 
movable  properties. 

{h)  To  examine  all  other  conditions  intended  to  assure 
the  exact  and  complete  fulfillment  of  the  law. 

{i)  To  make  a  general  examination  of  the  conduct  of 
the  banks  and  of  the  functions  which  they  perform  affecting 
either  the  public  interest  or  the  treasury. 

ARTICLE  125. 
[Article  20,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  director  of  the  bank,  or  whoever  acts  in  his  stead, 
and  his  subordinates  must  furnish  all  the  explanations 
and  exhibit  all  the  books  and  documents  required  by  the 
state  officials  charged  with  the  inspection.  The  director  or 
his  substitute  may  cause  to  be  present  at  the  inspection  the 
head  of  the  department  under  inspection  or  verification. 

ARTICLE  126. 
[Article  21,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  public  officials  charged  with  the  extraordinary 
inspections,  as  per  article  123,  must  submit,  within  one 
month  from  the  completion  of  the  inspection,  a  detailed 
account  of  the  results  of  the  said  inspection. 

In  case  the  conditions  revealed  by  the  inspection  are 
serious,  notice  thereof  must  be  given  immediately  to  the 
minister  himself. 

"  Date  of  the  enforcement  of  the  law  of  Aug.  10,  1893,  No.  449. 


327 


National     Monetary     Commission 

ARTICLE  127. 
[Article  22,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

The  minister  of  the  treasury  may  at  any  time  order 
extraordinary  inspections,  either  general  or  special,  of  the 
banks  of  issue. 

ARTICLE  128. 

[Article  23,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

When  ordinary  or  extraordinary  inspections  and  special 
verifications  reveal  infractions  specified  in  articles  21,  62, 
and  137,  the  officials  charged  with  such  inspections  and 
verifications  must  make  out  a  proper  report  and  transmit 
the  same  immediately  to  the  minister  of  the  treasury,  who 
will  take  action  as  provided  in  said  articles. 

Whenever  acts  are  revealed  of  a  criminal  character  the 
officials  must  report  same  to  the  judicial  authorities  and 
give  immediate  notice  thereof  to  the  aforesaid  minister. 

ARTICLE  129. 
[Article  24,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

Having  ascertained  the  facts  as  per  articles  138,  139, 
and  140,  the  minister  of  the  treasury  shall  make  regular 
report  to  the  judicial  authorities  for  infliction  of  the  punish- 
ments specified  by  those  articles. 

ARTICLE  130. 
[Article  25,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

Not  later  than  the  month  of  May  of  each  year  the 
minister  of  the  treasury  shall  submit  to  Parliament  a 
detailed  account  of  the  conduct  of  the  banks  of  issue  and 
of  the  state  and  bank  circulations  during  the  previous 
calendar  yea 


32J 


Law    Relating    to    Banks    of   Issue 

ARTICLE  131. 
[Article  26,  Appendix  P  to  the  law  of  August  8,  1895,  No.  486.] 

Until  the  reestablishment  of  the  fiduciary  circulation  of 
bank  notes,  the  inspectorate -general  shall  see  that  the 
official  rate  of  discount  and  that  of  interest  on  advances 
are  constantly  maintained  by  all  the  banks  of  issue,  with- 
out any  variations  not  sanctioned  by  the  law. 

Title  IX. — General  Regulations. 

ARTICLE  132. 
[Article  17,  law  of  August  10,  1893,  No.  449.] 

Members  of  ParHament  can  not  hold  any  office  in  the 
banks  of  issue,  whether  with  or  without  salary  or  com- 
pensation. 

ARTICLE  133. 

[Article  i,  law  of  August  10,  1893,  No.  449.] 

The  charter  of  the  Bank  of  Italy  is  approved  by  royal 
decree. 

This  approval  and  the  insertion  of  the  said  charter  in 

the  official  collection  of  laws  and  decrees  of  the  Kingdom 

shall  take  the  place  of  the  publications  and  transcriptions 

prescribed    in    the    Code    of   Commerce    for   joint    stock 

companies. 

ARTICLE  134. 

[Article  15,  law  of  August  10,  1893,  No.  449.     Article  9,  Appendix  T  to  the 
law  of  August  8,  1895,  No.  486.] 

The  appointment  of  the  director-general  of  the  Bank  of 
Italy  must  be  approved  by  the  Government. 

The  directors-general  of  the  Bank  of  Naples  and  the 
Bank  of  Sicily  are  appointed  by  royal  decree  upon  the 
recommendation  of  the  minister  of  the  treasury  with  the 
consent  of  the  council  of  ministers. 


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National     Monetary     Commission 

ARTICLE  135. 

[Article  18,  Appendix  B  to  the  law  of  January  17,  1897,  No.  9,  and  article 
10  of  the  same  law.] 

The  rules  governing  the  enforcement  of  articles  12,  15, 
80  to  82,  84,  87,  and  89,  guaranteeing  the  most  rigorous 
administration  of  the  Bank  of  Naples  and  its  realty  credit 
department,  the  proper  balance  of  their  ledgers,  and  the 
restriction  of  credits  to  those  inscribed  in  the  proper  lists, 
called  "Castelletti,"  and  for  sums  not  greater  than  those 
prescribed  in  the  said  hsts,  are  estabHshed  by  regulations 
approved  by  royal  decree.'^ 

The  same  decree  also  provides  for  a  permanent  treasury 
inspector  to  supervise  the  liquidation  of  the  said  realty 
credit  and  to  see  that  all  the  safeguards  ordered  to  guar- 
antee the  provisions  relating  to  the  said  realty  credit  are 
vigorously  enforced. 

Another  royal  decree  ^  establishes  the  rules  for  agree- 
ment between  the  Bank  of  Naples  and  the  other  banks  of 
issue  for  the  reciprocal  exchange  of  advices  regarding  the 
credits  granted  to  any  one  house. 

The  regulations  of  the  Bank  of  Naples,^  in  the  part 
concerning  the  personnel,  shall  determine  the  responsi- 
bility of  officials  of  all  grades  and  their  respective  duties, 
except  in  the  cases  considered  in  articles  138,  139,  and  140. 

«  Royal  decree  of  Apr.  22,  1897,  No.  141,  modified  by  royal  decree  of 
Nov.  19,  1905,  No.  553. 

^  Royal  decree  of  June  i,  1897,  No.  172. 

c  Approved  by  royal  decree  of  Aug.  2,  1908,  No.  529. 


330 


Law    Relating"    to    Banks    of   Issue 

ARTICLE  136. 

[Article  22,  law  of  April  7,  1881,  No.  133.     Article  4,  law  of  August  10,  1893, 
No.  449.     Article  10,  Appendix  D  to  the  law  of  January  17,  1897,  No.  9. J 

Clearing  houses  established  by  virtue  of  the  royal  decree 
of  March  19,  1881,  No.  220,  or  which  may  be  established 
thereafter,  shall  admit  a  representative  of  the  State 
Treasury  and  one  representative  of  the  branches  and  sub- 
branches  of  the  banks  of  issue,  of  the  savings  banks,  of 
banks  of  discount  and  people's  banks,  and  of  the  principal 
bankers,  for  the  exchange  of  notes  payable  to  bearer  at 
sight  and  for  the  clearance  of  other  bank  paper 

The  conduct  of  clearing  houses,  where  this  is  vested 
directly  in  the  chambers  of  commerce,  may  by  these  be 
intrusted,  with  the  consent  of  the  Government,  and  at 
their  own  risks  and  perils,  to  a  single  bank  of  issue,  if 
said  bank  already  exercises  such  functions. 

The  clearing  houses  which  may  be  established  in  cities 
where  there  are  branches  and  subbranches  of  any  of  the 
banks  of  issue  may  be  intrusted. by  the  local  chamber  of 
commerce  to  such  banks  of  issue,  united  in  association, 
as  may  have  branches  or  subbranches  at  said  place. 

TiTivE  X. — Penalties. 

ARTICLE  137. 
[Article  16,  law  of  August  10,  1893,  No.  449.] 

By  royal  decree,  upon  the  recommendation  of  the 
minister  of  the  treasury,  with  the  consent  of  the  council 
of  ministers,  the  power  of  issue  may  be  suspended  or 
revoked  in  the  case  of  any  bank  which  may  violate  the 
provisions  of  the  law  or  of  its  own  charter. 


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National     Monetary     Commission 

The  managers  of  the  banks  of  issue,  excepting  as  pro- 
vided by  article  149  of  the  Code  of  Commerce,  are  liable, 
collectively  and  individually,  to  the  shareholders  of  the 
bank  and  all  other  parties  for  nonfulfillment  of  the  pro- 
visions of  the  present  law,  statutes,  and  regulations, 
apart  from  the  civil  and  criminal  actions  arising  out  of 
other  laws. 

An  action  against  the  management  of  the  Bank  of  Italy 
may  be  instituted  by  one  or  more  shareholders  provided 
that  such  shareholder  or  shareholders  have  at  least  1,000 
shares. 

ARTICLE  138. 
[Article  20,  law  of  August  10,  1893,  No.  449.] 

In  case  of  transgression  of  the  provisions  of  the  present 
law  any  employee  of  the  banks  of  issue  who  shall  affirm 
what  is  false  or  conceal  the  truth,  thereby  misleading  the 
officials  of  supervision  or  inspection  with  the  object  -of 
concealing  irregular  conditions  of  said  banks,  forbidden 
operations,  or  actions  that  may  involve  the  responsibility 
of  another,  shall  be  punished  with  from  three  months' 
to  four  years'  imprisonment  and  with  temporary  inter- 
diction from  holding  public  office. 

ARTICLE  139. 
[Article  20,  law  of  August  10,  1893,  No.  449.] 

Whoever,  while  acting  as  supervisor  or  inspector  of 
the  banks  of  issue,  shall  affirm  what  is  false  or  conceal 
the  truth,  for  purposes  indicated  in  the  foregoing  article 
shall  be  punished  with  from  one  to  five  years'  imprison- 
ment and  with  temporary  interdiction  from  holding 
public  office. 


332 


Law    Relating    to    Banks     of    Issue 

ARTICLE  140. 
[Article  20,  law  of  August  10,  1893,  No.  449.] 

Whoever  shall  effect  the  issue  of  bank  notes  that  are 
not  manufactured  and  issued  according  to  the  rules  of 
article  4,  or  put  in  circulation  bank  notes  which  ought 
to  have  been  cancelled  or  burned,  shall  be  punished 
with  from  three  to  ten  years'  imprisonment  and  with 
temporary  interdiction  from  holding  public  office. 

ARTICLE  141. 
[Article  30,  law  of  April  30,  1874,  No.  1920.] 

Firms  and  associations  not  included  in  this  law,  and 

individuals,  who    shall    issue    notes    or  other  equivalent 

paper   payable  to  bearer  at   sight,    shall  be  subject  to 

a  fine  equal  to  the  amount  of  the  notes  or  other  paper 

issued. 

ARTICLE  142. 

[Article  30,  law  of  April  30,  1874,  No.  1920.     Law  of  July  5,  1908,  No.  388.] 

It  is  forbidden  to  manufacture,  to  issue,  or  to  put  in 
circulation,  for  any  purpose,  any  kind  of  notes  or  printed 
forms  imitating  or  resembling,  wholly  or  partially,  on  the 
face  or  back,  bank  notes  or  any  other  bank  paper, 
under  a  penalty  of  50  to  500  lire  against  those  who  shall 
manufacture  them  or  put  them  on  sale. 

The  printed  forms  and  the  plates  shall  in  every  case 
be  confiscated,  regardless  of  ownership,  and  shall  be 
destroyed. 


333 


National     Monetary     Commission 
TiTivE  XI. — Temporary  Regulations. 

ARTICLE  143. 

[Article  13,  law  of  August  10,  1893,  No.  449.  Article  6,  law  of  July  7,  1902, 
No,  290.  Article  4,  law  of  July  7,  1902,  No.  318.  Article  2,  law  of  July  5, 
1908,  No.  351.] 

The  credits  of  the  banks  of  issue  already  classed  as 
"  immobilizations,"  and  which,  under  contracts  previous  to 
June  30,  1893,  by  their  terms  of  currency  or  by  provision 
of  law,  can  not  be  liquidated  till  31st  of  December,  1908, 
shall  be  liquidated  as  soon  as  they  become  collectible 
under  their  special  contracts  or  by  law. 

ARTICLE  144. 
[Article  5,  law  of  July  7,  1902,  No.  290.] 

The  Bank  of  Italy  and  the  Bank  of  Naples  are  authorized 
to  grant  to  the  Society  for  the  Sanitation  of  Naples 
temporary  advances,  guaranteed  as  prescribed  by  law, 
bearing  interest  at  3.50  per  cent,  up  to  a  total  sum  not 
exceeding  the  actual  value  of  the  public  works  already 
executed,  to  form  a  contribution  of  7  millions  for  the  com- 
pletion of  the  said  works. 

ARTICLE  145. 

[Article  7,  law  of  July  7,  1902,  No.  290.     Article  16,  law  of  January  17,  1897, 

No.  9.] 

The  Bank  of  Italy  and  the  Bank  of  Naples,  for  the 
purpose  of  the  liquidation  and  reimbursement  of  their  re- 
spective credits  in  connection  with  the  Society  for  the 
SanitPtion  of  Naples,  shall,  until  the  end  of  the  year  1913. 
be  entitled  to  a  reduction  of  three-quarters  of  the  tax  for 
registration  of  sales,  purchases  of  immovable  property,  or 
transference  of  credits  and  other  fiscal  proceedings  as  per 


334 


Law    Relating    to    Banks     of    Issue 

article  2  of  the  law  of  December  26,  1901,  No.  516,  regard- 
less of  the  dates  of  their  respective  mortgages. 

Furthermore,  the  said  institutions  shall,  until  the  same 
date,  be  entitled  to  a  reduction  of  one-half  of  the  regis- 
tration stamps  and  taxes  due  for  processes  and  judgments 
in  the  collection  of  their  above-mentioned  credits. 
Witnessed  by  order  of  His  Majesty: 

(Signed)  Tedesco, 

The  Minister  Secretary  of  State  for  the  Treasury. 


39781°— II 22  .  335 


APPENDIX  I. 

ROYAL  DECREE  OF  OCTOBER  lo,  1895,  No.  627,  FIXING  THE 
REQUIREMENTS  FOR  THE  ADMISSION  OF  BILLS  OF  EX- 
CHANGE ON  FOREIGN  COUNTRIES  AND  CREDITS  IN  CUR- 
RENT ACCOUNTS  ABROAD  AS  PART  OF  THE  RESERVE  OF 
BANFS  OF  ISSUE. 

[Published  in  the  Official  Gazette  of  the  Kingdom  October  24,  1895,  No. 

251.] 

Humbert  I,  by  Grace  of  God  and  by  Will  of  the 
Nation  King  of  Italy. 

In  pursuance  of  article  6  and  article  11  of  the  law  of 
August  10,  1893,  No.  449,  for  the  reorganization  of  the 
banks  of  issue;  and 

In  pursuance  of  article  31  of  the  law  of  August  8,  1895, 
No.  486,  regarding  finances  and  treasury;  and 

In  pursuance  of  the  text  of  the  regulations  for  super- 
vision of  the  banks  of  issue,  constituting  Appendix  P, 
approved  by  article  26  of  the  aforenamed  law  of  August 
8,  1895;  and 

With  the  consent  of  the  banks  of  issue; 

Upon  the  proposal  of  our  secretary  of  state  for  the 
treasury : 

We  have  decreed,  and  do  hereby  decree: 

ARTICLE  i.« 
The  bills  of  exchange  on  foreign  countries  which,  ac- 
cording to  the  terms  of,  and  within  the  limits  specified 


a  For  articles  6  and  11  of  the  law  of  August  10,  1893,  No.  449,  must  be  sub- 
stituted articles  11  and  19  of  the  new  text  of  the  law. 


336 


Law    Relating    to    Banks    of    Issue 

in,  articles  6  and  ii  of  the  law  of  August  lo,  1893,  No. 
449,  may  be  included  in  the  reserve  covering  the  circula- 
tion, must  be  disposable  abroad,  on  the  day  when  such 
bills  become  due,  in  gold  specie  or  in  money  at  the  full 
value  of  the  Latin  monetary  union. 

These  bills  of  exchange,  duly  accepted  by  the  agent 
abroad,  must  fall  due  not  later  than  three  months  from 
the  date  when  they  begin  to  form  part  of  the  portfolio 
for  the  reserve  of  the  banks  of  issue,  and  must  be  furnished 
with  at  least  two  first-class  signatures. 

ARTICLE  2. 

Within  fifteen  days  from  the  publication  of  the  present 
decree,  and  successively  at  the  end  of  every  six  months, 
the  banks  of  issue  shall  transmit  to  the  treasury  a  list  of 
institutions  and  banking  firms,  not  direct  correspondents 
of  the  treasury,  whose  signatures  they  consider  as  being 
of  first  class,  as  per  the  foregoing  article. 

The  minister  of  the  treasury  shall  at  all  times  have  the 
right  to  order  the  elimination  of  one  or  more  names  of 
institutions  or  firms  from  the  said  list. 

ARTICLE  3. 
To  form  part  of  the  quota  of  reserve,  within  the  limits 
specified  in  article  i  of  the  present  decree,  are  admitted 
the  bonds  of  the  British  treasury,  and,  in  general,  treas- 
ury bonds  of  foreign  states,  the  same  being  payable  in 
gold  or  at  the  full  value  of  the  Latin  monetary  union, 
provided  that  not  more  than  three  months  intervene  be- 
tween the  date  of  acquisition  by  the  banks  of  issue  and 
the  date  when  the  said  bonds  fall  due. 


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National     Monetary     Commission 

ARTICLE  4. 

As  part  of  the  reserve  covering  the  circulation  of  the 
banks  of  issue,  within  the  hmits  specified  in  article  i ,  are 
admitted  the  credits  in  current  account,  perfectly  dispos- 
able in  gold  or  at  the  full  value  of  the  Latin  union,  at 
sight  or  for  a  term  not  exceeding  fifteen  days,  which  the 
banks  of  issue  may  have  abroad  with  the  large  banks  of 
issue  and  bankers  in  direct  correspondence  with  the 
treasury. 

The  banks  of  issue  availing  themselves  of  this  provi- 
sion must  transmit  to  the  treasury  detailed  certificates 
proving  the  actual  existence  of  the  said  credits,  issued  by 
the  institutions  or  by  the  debtor  bankers,  at  the  close  of 
business  on  the   loth,   20th,   and  the  last  day  of  each 

month. 

ARTICLE  5. 

The  said  certificates  must  bear  a  statement  of  the  actual 
credit  of  the  Italian  bank  of  issue  at  the  close  of  business 
on  the  loth,  20th,  and  the  last  day  of  each  month;  the 
kinds  of  money  in  which  the  credit  is  payable ;  the  declara- 
tion that  the  said  credit  is  payable  entirely  at  sight  or  not 
later  than  fifteen  days  from  the  date  when  notice  for  re- 
payment has  been  given;  the  signature  of  the  person 
legally  authorized  to  represent  the  institution  or  firm  issu- 
ing the  certificate. 

The  banks  of  issue  that  shall,  by  means  of  assignments 
or  in  any  other  manner,  have  disposed  of  a  credit  in 
account  current  abroad,  when  their  respective  corre- 
spondents shall  have  been  unable  to  receive  notice  of  it  at 
the  time  the  certificate  was  issued,  must  make  special 


338 


Law    Relating    to    Banks     of    Issue 

note  of  the  fact  upon  the  said  certificate,  for  the  precise 
determination  of  the  amounts  in  account  current  perfectly 
disposable  as  per  the  terms  of  the  preceding  article. 

ARTICLE  6. 
The   relation   between   foreign   moneys  and  gold  and 
silver  specie  at  the  full  value  of  Italian  coin  shall  be 
established  by  agreement  between  the  minister  of  the 
treasury  and  the  banks  of  issue. 

ARTICLE  7.« 

The  central  office  of  inspection  for  the  supervision  of 
the  circulation  of  the  banks  of  issue  shall  ascertain,  at 
short  intervals,  whether  the  provisions  contained  in  the 
foregoing  articles  have  been  strictly  observed,  and  it  may 
examine  the  records  and  correspondence  of  the  institutions 
in  order  to  certify  the  real  existence  of  the  active  deposits 
abroad  represented  by  the  certificates  as  per  articles 
4  and  5. 

We  command  that  the  present  decree,  sealed  with  the 
state  seal,  be  placed  in  the  official  compendium  of  the 
laws  and  decrees  of  the  Kingdom  of  Italy,  binding  upon 
all  persons  whose  duty  it  is  to  observe  it  and  to  enforce 
the  observance  thereof. 

Given  at  Monza  on  this  loth  day  of  October,  1895. 

Humbert. 

Sidney  Sonnino. 
Witness  the  keeper  of  the  seals: 
V.  Calenda  di  Tavani. 

a  In  article  113,  of  the  new  Text  of  law,  the  words  "  inspectorate-general " 
must  be  substituted  for  the  words  "central  ofi&ce  of  inspection." 


339 


National     Monetary     Commission 
APPENDIX  II. 

ROYAL  DECREE  OF  OCTOBER  25,  1S95,  NO.  639,  AUTHORIZING 
THE  BANKS  OF  ISSUE  TO  DISCOUNT  BILLS  OF  EXCHANGE 
BEARING  FIRST  CLASS  SIGNATURES  AT  LESS  THAN  THE 
NORMAL   RATE. 

[Published  in  the  Otficial  Gazette  of  the  Kingdom   November  6,   1895, 

No.  261.] 

Humbert  I,  by  Grace  of  God  and  by  Will  of  the 
Nation  King  of  Italy. 

In  pursuance  of  article  4  of  the  law  of  August  10,  1893, 
No.  449,  for  the  reorganization  of  the  banks  of  issue;  and 

In  pursuance  of  article  35  of  the  law  of  August  8,  1895, 
No.  486,  providing  for  the  finances  and  the  treasury;  and 

In  pursuance  of  article  26,  Appendix  P,  approved  by 
article  26  of  the  said  law  of  August  8,  1895;  and 

Upon  the  proposal  of  the  minister  of  the  treasury; 

We  have  decreed  and  do  hereby  decree: 

ARTICLE  I. a 

The  banks  of  issue,  with  due  consideration  of  the  funds 
at  their  disposal  and  the  condition  of  the  market,  and 
provided  the  amount  in  circulation  of  their  respective 
notes  does  not  exceed  the  normal  limits  laid  down  in  article 
2  of  the  law  of  August  10,  1893,  No.  449,  are  hereby  author- 
ized to  discount  at  a  rate  less  than  the  normal  rate — to  be 
determined  every  tlnree  months  by  ministerial  decree,  in 
agreement  with  the  banks  of  issue,  but  which  can  be  in  no 
case  less  than  3K  per  cent — bills  of  exchange  presented 

o  For  article  2  of  the  law  of  August  10,  1893,  No.  449,  must  be  substituted 
article  6  of  the  new  Text. 

For  the  determination  of  the  reduced  rate  see  article  8  of  the  aforesaid 
Text. 


340 


Law    Relating    to    Banks    of   Issue 

and  guaranteed  by  commercial  and  banking  signatinres  of 
the  first  class,  which  shall  fall  due  not  later  than  three 
months  from  the  date  when  the  discoimt  is  made. 

ARTICLE  2. 

Absolutely  excluded  from  this  concession,  as  per  the 
foregoing  article,  are  bills  of  *  exchange  renewed  either 
totally  or  partially,  extending  wholly  or  partially  the 
payment  of  the  debt,  as  well  as  those  bills  of  exchange 
resulting  from  the  extinction  of  the  current  debt. 

ARTICLE  3. 

The  decisions  of  the  discount  committee  regarding  the 
operations  treated  in  the  present  decree,  must  be  re- 
corded in  separate  reports  and  must  be  adopted  by  at 
least  an  absolute  majority  of  the  members  composing 
the  said  committee. 

The  director  of  the  branch  {sede)  or  subbranch  {suc- 
cursale)  may  suspend  such  a  decision,  referring  the  same 
without  delay  to  the  Board  of  Directors  for  final  decision. 

ARTICLE  4-« 

The  portfolio  of  bills  of  exchange  discounted  in  con- 
formity with  article  i  must  be  kept  separate  and  dis- 
tinct both  from  the  ordinary  portfolio  and  from  that  for 
the  discount  operations  as  per  the  third  paragraph  of 
article  4  of  the  law  of  August  10,  1893,  ^o-  449- 

«  For  the  words  "third  paragraph  of  article  4  of  the  law  of  August  lo, 
1893,  No.  449"  must  be  substituted  "article  28  (3d  and  4th  paragraphs)  of 
the  text." 


34t 


National    Monetary     Commission 

ARTICLE  5.« 

The  portfolio  of  the  bills  of  exchange  discounted  in 
accordance  with  the  terms  of  the  present  decree  shall  be 
subject  to  verifications  by  the  central  inspection  bureau 
of  the  treasury.  The  officials  charged  with  the  verifi- 
cations shall  be  at  liberty,  to  examine  the  special  records 
of  decisions  of  the  discount  committee  with  a  view^  to 
certifying  their  correctness  and  to  comparing  them  with 
records  of  the  said  portfolio. 

We  command  that  the  present  decree,  sealed  with  the 
State  seal,  be  placed  in  the  official  compendium  of  the 
laws  and  decrees  of  the  Kingdom  of  Italy,  binding  upon 
all  the  persons  whose  duty  it  is  to  observe  it  and  to 
enforce  the  observance  thereof. 

Given  at  Monza  on  this  25th  day  of  October,  1895. 

Humbert. 

Sidney  Sonnino. 
Witness  the  keeper  of  the  seals : 

V.  CaIvEnda  di  Tavani. 

aln  article  113  of  the  new  text  the  words  "inspectorate-general"  must 
be  substituted  for  "central  inspection  bureau." 


342 


Law    Relating    to    Banks    of   Issue 

APPENDIX  HI. 

ROYAL  DECREE  OF  FEBRUARY  9,  1908,  NO.  62,  REGULATING 
THE  DISCOUNT  BY  BANKS  OF  ISSUE  OF  BILLS  ISSUED  BY 
THE  OBLIGATORY  ASSOCIATION  FOR  THE  SICILIAN  SUL- 
PHUR INDUSTRY  TO  THE  AUTONOMOUS  BANK  OF  MINING 
CREDIT  FOR  SICILY. 

[Published   in   the   Official  Gazette  of  the  Kingdom  February  29,  1908, 

No.  50.] 

Victor  Emmanuel  III,  by  Grace  of  God  and  by  the 
Will  of  the  Nation  King  of  Italy. 

In  pursuance  of  the  article  13  of  the  law  of  December 
31,  1907,  No.  804;  and 

With  the  consent  of  the  council  of  ministers;  and 

Upon  the  proposal  of  our  secretaries  of  state  for  agri- 
culture, industry,  commerce,  and  the  treasury,  and  in 
agreement  with  the  minister  of  finance; 

We  have  decreed  and  do  hereby  decree: 

ARTICLE  I. 

The  obligatory  Sulphur  Association  of  Sicily  may 
issue,  in  favor  of  the  Autonomous  Bank  of  Mining  Credit, 
bills  of  exchange  to  an  amount  not  exceeding  three- 
fourths  of  sums  for  which  it  may  by  regular  contract  be 
creditor  to  any  party  for  sales  of  sulphur. 

Upon  such  bills  of  exchange  there  must  be  indicated 

the  date  and  the  terms  of  the  contracts  and  the  quantity 

of  the  sulphur  sold. 

ARTICLE  2. 

The  amount  of  such  bills  of  exchange  shall  be  turned 
over  by  the  Autonomous  Bank  of  Mining  Credit  to  the 
Bank  of  Sicily,  which  is  the  cashier  of  the  sulphur  asso- 
ciation, and  entered   by  the  said   bank  in  the  account 


343 


National    Monetary     Commission 

current  as  per  article  12,  second  paragraph,  of  the  royal 
decree  of  July  22,  1906,  No.  378,  to  be  distributed  among 
the  producers  in  the  association  and  among  other  inter- 
ested parties  according  to  the  rules  in  force. 

ARTICLE  3. 

The  banks  of  issue  are  authorized  to  discount  at  a 
preferential  rate  such  bills  of  exchange  for  a  term  not 
longer  than  four  months. 

On  the  price  which,  by  the  terms  of  the  contract,  shall 
be  paid  by  the  buyer  upon  delivery  of  the  mineral,  the 
institution  holding  the  bills  has  the  right  of  preference  up 
to  the  amount  of  the  credit  due  on  the  said  bills. 

In  pursuance  of  the  preference,  the  part  of  the  price 
equal  to  that  advanced  to  the  association  by  the  institu- 
tions must  be  placed  in  a  special  account  current  which 
the  Bank  of  Sicily,  as  cashier  of  the  association,  shall 
hold  at  the  disposition  of  the  contributing  institutions, 
after  regular  notification  of  their  credit  has  been  made  to 
the  said  bank  in  the  aforesaid  capacity. 

ARTICLE  4. 

The  banks  of  issue  are  likewise  authorized  to  discount 
at  preferential  rates  of  interest  bills  at  not  more  than 
four  months,  issued  by  the  Autonomous  Bank  of  Mining 
Credit,  on  receipt  of  certificates  of  deposits  and  warrants 
on  sulphur,  in  amount  equal  to  the  value  of  bills  to  be 
discounted. 

The  Bank  of  Mining  Credit  and  the  Bank  of  Sicily  in 
its  capacity  as  cashier  of  the  sulphur  association,  shall 
fix  by  agreement  the  rules  for  the  eventual  replacement 


344 


Law    Relating"    to    Banks    of    Issue 

of  any  certificates  of  deposit  and  warrants  which  may 
become  void  before  the  discounted  bills  fall  due,  and  for 
insuring  the  payment  of  the  said  bills. 

We  command  that  the  present  decree,  sealed  with  the 
state  seal,  be  placed  in  the  official  compendium  of  the 
laws  and  decrees  of  the  Kingdom  of  Italy,  binding  upon 
all  persons  whose  duty  it  is  to  observe  it  and  to  enforce 
the  observance  thereof. 

Given  at  Rome  on  this  9th  day  of  February,  1908. 

Victor  Emmanuei.. 

GlOLlTTI. 

Carcano. 
F.  Cocco-Ortu. 
Lacova. 
Witness  the  keeper  of  the  seal : 

OrIvANDO. 


^ 


345 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWED 

LOAN  DEPT. 

This  book  is  due  on  the  last  date  stamped  below,  or 

on  the  date  to  which  renewed. 

Renewed  books  are  subject  to  immediate  recall. 


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